UBS maintains Buy rating and $58 target on DraftKings stock

On Monday, UBS analyst Robin Farley maintained a Buy rating on shares of DraftKings Inc. (NASDAQ:DKNG) with a steady price target of $58.00. With a current market capitalization of $17.4 billion and revenue growth of 23% in the last twelve months, DraftKings continues to show strong market presence. Farley addressed concerns regarding the slowing growth of betting handle for DraftKings and its competitor FanDuel, owned by Flutter Entertainment (FLUT). InvestingPro analysis suggests the company is currently undervalued, with additional insights available through their comprehensive Pro Research Report. The analyst pointed out that the deceleration in the short term is partly due to DraftKings not repeating certain past promotions that, while increasing handle, did not yield strong returns. Consequently, a lower handle growth is expected in the second quarter, with an anticipated acceleration in the second half of the year.

Farley further explained that a natural deceleration is to be expected as new states, which initially see a surge in handle due to promotional activities, mature. These promotions often do not directly contribute to revenue and can even result in net negative revenue when state taxes on gross gaming revenue (GGR) are accounted for. Despite this, the analyst sees an opportunity for growth in the long term, aligned with InvestingPro data showing analysts expect 32% revenue growth in the current fiscal year. While the company operates with moderate debt levels, it maintains a healthy current ratio of 1.2.

The UBS analyst also discussed the influence of betting types on revenue, noting the significant role of parlay betting in driving the hold rate, which is the percentage of wagers that a sportsbook keeps after paying out winnings. DraftKings’ parlay mix is estimated at around 30%, with FanDuel’s mix potentially 7 percentage points higher. While DraftKings aims to enhance its parlay offerings to compete with FanDuel, it also seeks to distinguish itself by expanding its live betting options, which have a lower hold rate but still contribute positively to revenue.

Farley’s comments come as DraftKings focuses on differentiating its product offerings and improving its live betting capabilities, which have seen substantial growth over the past six months. The company’s strategy to balance the growth of live betting against the lower hold rate it carries is a key point of differentiation from its competitors. While currently not profitable, InvestingPro data reveals analysts expect the company to achieve profitability this year, with 8 additional exclusive ProTips available for subscribers seeking deeper insights into DraftKings’ financial health and growth prospects.

In other recent news, DraftKings Inc. reported a 20% year-over-year increase in first-quarter revenue, reaching $1,409 million, although this fell short of both Guggenheim’s and consensus estimates. The company’s EBITDA for the quarter was $103 million, surpassing the consensus estimate but not meeting Guggenheim’s projection. DraftKings has revised its 2025 revenue and adjusted EBITDA forecasts downward, a decision influenced by outcomes during the NCAA Men’s Basketball Tournament. Despite these revisions, analysts from firms such as Benchmark and Macquarie maintain a positive outlook, with Benchmark raising its price target to $45 and Macquarie adjusting its target to $53 while maintaining an Outperform rating.

DraftKings’ first-quarter performance showed strong user engagement and an improved structural sportsbook hold, although customer-friendly outcomes during March Madness impacted revenue growth. The company’s Monthly Unique Payers grew by 26% year-over-year, reaching 4.3 million, driven by effective retention and acquisition strategies. Analysts from TD Cowen and Stifel also adjusted their price targets to $53, citing strong underlying metrics and product improvements. Meanwhile, Guggenheim has revised its price target to $60, noting robust consumer demand and DraftKings’ commitment to cost discipline.

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