Morgan Stanley has reduced its price target for DraftKings from $39 to $36, citing the growing financial burden of building out prediction market operations.
The bank’s gaming team, led by Stephen Grambling, forecast second quarter EBITDA of around $150m for DraftKings, falling well short of the broader sell-side consensus of roughly $175m.
Morgan Stanley also expects DraftKings to narrow its full-year EBITDA guidance to between $700m and $800m, tightening the range from the previous $700m to $900m.
The note, published on 22 July, covered eight gaming stocks and painted a mixed picture across the sector, with US regional casinos performing strongly while Macau and online betting lagged behind.
Despite the target cut, Morgan Stanley maintained an overweight rating on DraftKings, keeping its broadly positive outlook on the operator’s long-term prospects.
The analysts pointed directly to prediction market customer acquisition costs and weaker gross hold as the primary drags on quarterly performance.
The note stated: “Our revised ~$150m EBITDA in Q2 would equate to a slight miss vs. consensus at ~$175m largely due to increased prediction market customer acquisition and slightly weaker gross hold in the June World Cup results, and we expect management to narrow its full-year EBITDA guidance to $700m-$800m (from $700m-$900m prior).”
Morgan Stanley significantly expanded how it models the prediction market opportunity, now factoring in parlays and combos alongside straight trades, plus both market making and exchange fees.
The bank projects DraftKings will post EBITDA losses of roughly $290m in 2026 and $40m in 2027, before returning to a $125m profit in 2028.
September’s NFL season launch was flagged as the critical moment for assessing how prediction markets are reshaping competitive dynamics across sports betting.
The analysts noted: “The rubber meets the road into NFL launch in September to assess both existing market encroachment from new PM entrants and the power of DKNG/FLUT to take share in non-OSB markets.”
On the wider sector, Las Vegas Strip gaming revenue rose 10% in the quarter to date, a sharp improvement against the 0.5% increase recorded in the first quarter, while Macau remained flat.
Sportradar’s price target was nudged upward to $17 from $16, forming part of a broader pattern in which five of the eight stocks covered in the note received target increases.
MGM Resorts saw the largest single increase, with its target raised to $43 from $35, though Morgan Stanley noted this reflected a change in valuation methodology incorporating a takeover approach rather than improved trading performance.
Across the full coverage group, Morgan Stanley’s price targets rose by approximately 4% on average, suggesting cautious but sustained confidence in the sector’s overall direction.
