Wall Street loves a distressed growth story, and the DraftKings stock is suddenly wearing the costume again.
DraftKings closed Friday at a nearly three-year low after issuing guidance that includes tens of millions in prediction markets investment but excludes any revenue from what management called its “largest opportunity since PASPA fell.”
Analysts largely view the selloff as a discounted entry into DKNG, as the firm returns to the “wait and see” playbook that buoyed its last recovery against a more uncertain outlook. They broadly expect the buildout to pressure short-term earnings, as DraftKings prioritizes user growth and platform activity before meaningful revenue contribution.
The stock closed up 3.8% to $22.59 on Tuesday.
Skepticism sits beneath the reset
Steven Pizzella of Deutsche Bank offered one of the more cautious responses, lowering his price target to $26 from $36 while maintaining its hold rating.
Pizzella called the $700 million to $900 million EBITDA outlook “conservative, below the low end,” coming in roughly 18% behind Street expectations. He said the guide appears intentionally built with “some cushion,” but warned it “will have to be proven given the previous negative revision cycles.”
Jordan Bender of Citizens maintained his outperform rating while lowering his price target to $38 from $44. He described the guidance as a sign that management has “pivoted back to setting the bar low to start the year,” referring to a strategy DraftKings deployed in its early public years and again in 2023, when subdued initial forecasts created room for successive beat-and-raise revisions.
Barry Jonas of Truist said the selloff reflects “a confluence of the self-imposed ‘conservative’ guidance, prediction market uncertainty and fears of higher state taxes.” He reiterated a buy rating but cut his price target to $33 from $45.
Handle slowdown adds to scrutiny
After posting handle growth north of 35% and 46% in the first half of 2024, gains cooled into the mid-teens and single digits through 2025, falling to just 4% year-over-year growth in January.
The deceleration raises broader questions about the durability of wagering growth as the U.S. market matures. While hold expansion and parlay mix have helped offset slower handle gains in recent quarters, analysts say sustained moderation in betting volume could pressure long-term revenue growth assumptions embedded in sector valuations.
DraftKings has maintained that prediction markets are not materially impacting sportsbook wagering, even as the slowdown has coincided with the ramp-up of sports event contracts. Pizzella said that explanation, if accurate, introduces a separate layer of concern.
“If the prediction markets aren’t having a material impact on handle now, what happens if they start to,” Pizzella said.
While DraftKings enters prediction markets with brand, pricing infrastructure and customer advantages, analysts also flagged lower economic barriers to entry that create a more open competitive field than the company has faced in online sports betting.
Taxes add another layer of caution to DraftKings stock
CEO Jason Robins said on the earnings call that states would be “absolutely crazy” to raise sportsbook taxes given the competitive threat posed by prediction markets, which operate outside state gaming tax frameworks.
“Still multiple threats at the moment,” Jonas wrote, pointing to Arizona’s proposed sportsbook tax increase to 45% from 10% and Michigan iGaming tax hikes layered alongside potential OSB changes. The firm said investor focus has centered on those measures, estimating a combined gross revenue impact of roughly $113 million based on trailing figures if enacted.
Jonas noted operators have historically mitigated roughly half of tax increases through pricing actions and said additional levers, including customer surcharges like the one DraftKings instituted in Illinois, remain available. Analysts cautioned, however, that mitigation through pricing still carries potential competitive risk, as prediction market platforms offer lower-cost alternatives.
DraftKings stock opportunity beyond reset
Chad Beynon of Macquarie lowered his target to $40 from $48 while maintaining an outperform rating, noting profitability will remain pressured near term by predictions investment but positioning the company for improved operating leverage beginning in 2027.
Beynon said flow-through will remain pressured through 2026 given predictions investment, but added DraftKings’ scale supports double-digit revenue growth as its investment cycle moderates.
David Katz of Jefferies maintained his buy rating while trimming its price target to $46 from $50, taking a more constructive view of the pullback. The firm pointed to DraftKings’ swing to $136 million in fourth-quarter net income as evidence of operating strength and said demand for sports wagering “should remain robust.”
DraftKings is expected to provide more detail on its predictions strategy at its upcoming Investor Day, a catalyst analysts flagged as key to resetting expectations. Jonas said its estimates could shift as management provides clearer visibility into rollout and revenue timing, while Pizzella pointed to the event as an opportunity to outline long-term investment returns and competitive positioning.
