Stifel lowered its third-quarter earnings estimates for several major online gambling companies, warning that unfavorable sports results, rising prediction market spending and slowing online casino growth could weigh on profitability despite improving sportsbook fundamentals.
The investment bank now expects adjusted EBITDA to fall short of Wall Street estimates at DraftKings, Flutter Entertainment, Rush Street Interactive and Sportradar, according to a research note previewing third-quarter earnings.
Stifel estimates U.S. online sports betting handle grew 10% year over year during the quarter despite the NFL and college football seasons starting roughly a week later than last year. However, bettor-friendly results likely reduced sportsbook hold, offsetting some of the benefit from higher wagering volume, wrote analysts Jeffrey Stantial and Steven Wieczynski,
Prediction market costs drag earnings
Stifel cut its 2026 adjusted EBITDA forecast for DraftKings by $100 million to reflect additional prediction market spending the company signaled in September, putting its estimate 16% below the low end of the company’s previous guidance.
Stifel maintained its buy rating on DraftKings but lowered its price target to $32 from $36.
DraftKings previously outlined $200 million to $300 million in prediction market investment for 2026. But CEO Jason Robins has since said stronger-than-expected customer acquisition and conversion rates could justify pulling forward spending originally planned for next year.
Stifel expects management to emphasize attractive customer acquisition costs and projected payback periods, but warned that additional spending could further weigh on investors given uncertainty over the long-term economics and legality of prediction markets.
Still, Stifel expects DraftKings to maintain its roughly $1 billion core adjusted EBITDA outlook for 2026, excluding prediction market investment. The firm projects third-quarter sportsbook net revenue hold of 6.6%, above Wall Street’s 6.4% estimate, as growing parlay volume and lower promotional spending help offset unfavorable sports results.
Stifel also expects online casino revenue to exceed estimates, with DraftKings’ online gambling market share showing signs of stabilizing after several quarters of declines.
FanDuel shows signs of recovery
Despite forecasting a 7% Q3 adjusted EBITDA miss for Flutter, Stifel named the FanDuel parent its top stock pick heading into earnings, citing improving U.S. sportsbook market share and a widening valuation discount to DraftKings.
Stifel estimates FanDuel’s U.S. sportsbook handle grew 10% year over year, double Wall Street’s 5% forecast. Growth also outpaced the broader market in August and September, suggesting FanDuel is regaining share after a period of declines. Across nine states reporting promotional data, Stifel found FanDuel’s promotional reinvestment declined by 0.7 percentage points year over year, suggesting the company could regain share at a lower cost than expected.
While analysts cautioned that two months do not establish a sustained recovery, they argued Flutter’s valuation already reflects further market share losses, with shares trading at a roughly 40% discount to DraftKings on projected 2027 EBITDA.
Stifel maintained its buy rating on Flutter but lowered its price target to $125 from $133.
Online casino growth slows across US
Stifel estimates U.S. online casino gross gaming revenue grew 13% year over year in the third quarter, down from 19% growth in the first quarter and 20% to 30% last year.
Long viewed as a higher-margin growth opportunity for sportsbooks, online casino has taken a back seat to prediction markets as an industry priority. Growth continued to slow in September despite easier comparisons, raising concerns about market maturation rather than temporary World Cup and calendar effects.
That poses a particular challenge for Rush Street Interactive, whose North American revenue growth is projected to slow to 14%, from 23% in the second quarter. Stifel expects a 2% adjusted EBITDA miss for the BetRivers parent, potentially ending a streak of 17 consecutive quarters without a miss.
Still, Stifel maintained its buy rating while cutting Rush Street’s price target to $30 from $34, arguing the stock’s roughly 40% decline over seven weeks already reflects much of the slowdown. Shares trade at less than eight times projected 2028 adjusted EBITDA.
Prediction markets may provide upside
Online gambling stocks have fallen sharply this year, with Stifel’s covered sportsbook and casino operators down roughly 20% to 60%. Their valuations are now 35% to 55% below five-year averages, though analysts warned that further earnings misses could delay a recovery.
Stifel sees potential upside for Sportradar and Genius Sports from their prediction market partnerships with Kalshi and Polymarket. The firm cited Genius’ acquisition of Legend, which stands to benefit from increased advertising, and more conservative revenue forecasts. Sportradar could benefit from growing data demand and additional market makers, though Stifel believes much of that growth is already reflected in earnings expectations.
Stifel maintained its buy rating on Sportradar but lowered its price target to $17 from $18, while keeping a hold rating on Genius and cutting its target to $7 from $8.50
With investor expectations already lowered, analysts identified a potential Supreme Court ruling on prediction markets in 2027 as a more significant catalyst for the sector, as uncertainty weighs on valuations.
