DraftKings analysts cut target price, cite earnings risk from headwinds

Bank of America analysts downgraded DraftKings Inc (NASDAQ:DKNG) to 'Neutral' and cut its price target to $35 per share, citing persistent headwinds expected to diminish long-term earnings power. Key concerns include a decline in iGaming market share from 27% to 23%, ongoing state tax pressures impacting margins by approximately 200 basis points, and potential competitive marketing from prediction markets. The firm subsequently lowered its 2026 and 2027 EBITDA estimates significantly to $1 billion and $1.4 billion, respectively, both below Wall Street consensus, which contributed to DraftKings shares falling over 5% in midday trading.

Analysis

Bank of America analysts downgraded DraftKings (DKNG) to 'Neutral' and reduced its price target to $35 per share, citing persistent headwinds expected to diminish the sports betting platform's long-term earnings power. This downgrade is primarily driven by a notable decline in DKNG's iGaming market share, which fell from 27% to 23% over the past two years, alongside ongoing state tax pressures that have compressed margins by approximately 200 basis points. The analysts also flagged the potential for competitive marketing and price wars stemming from prediction markets as a significant risk.

Consequently, the firm significantly lowered its EBITDA estimates, revising 2026 EBITDA to $1 billion from $1.26 billion (now below the Wall Street forecast of $1.28 billion) and 2027 EBITDA to $1.4 billion from $1.7 billion. The 2026 estimate notably incorporates a $75 million investment in prediction markets. Following this analyst note, DraftKings shares experienced a negative market reaction, falling more than 5% to $28.96 in midday trading.

Key Decisions for Investors

• Investors should re-evaluate DraftKings' long-term growth prospects given the persistent margin pressures from state taxes and the erosion of iGaming market share.
• Monitor the company's ability to mitigate competitive pressures from prediction markets and stabilize its market position in key segments.
• Consider the revised EBITDA estimates, which are now below consensus, as a potential indicator of a more challenging profitability outlook for DKNG.