Potential Investment in DraftKings' Products Might Act as a Trigger, Predicts Analyst's Viewpoint
Posted on: June 3, 2025, 10:09h.
Last updated on: June 3, 2025, 10:31h.
Todd Shriber @etfgodfather - Investment Insights - Gaming Business - Mergers and Acquisitions Investing in DraftKings' product development could make a bold move for stock growth
DraftKings' (NASDAQ: DKNG) shares took a plunge, dropping 9.52% year to date. However, a closer look at the company's strong technology stack and leadership in product development suggests that it might be undervalued.
Jefferies analyst David Katz spotlighted DraftKings' product investment, with a focus on in-game betting, in the firm's updated Franchise Picks list. This group of 28 catalyst-rich stocks is trading at valuations suggesting possible upside, with DraftKings being the only gaming name on the list. Katz rates the stock a "buy" with a $60 price target.
Katz argues that investments in enhancing DraftKings' products, particularly live betting, could give the operator a competitive edge and fuel growth. He also anticipates that the evolution of existing markets, new states legalizing online gambling, and the jackpot acquisition could be favorable factors.
Last year, DraftKings completed a $750 million acquisition of Jackpocket, an internet lottery courier. Half of this amount was paid in cash, with the remaining half covered by DraftKings' stock. Lottery players are often resilient in recessions, and this acquisition could potentially boost DraftKings' earnings in the long term as more states legalize online lottery sales.
Investors: Stop Being Wishy-Washy with Spreadsheets!
Some investors tend to get caught up in the monthly data reports from states where online sports betting is allowed, analyzing every detail meticulously. As Katz points out, these reports can be quite volatile, making it essential not to put too much faith in them.
While the domestic sports wagering market is growing at a faster pace than expected, there are concerns about state-level gaming tax increases, which some analysts view as overblown. Katz acknowledges that this is a near-term issue, but digital operators have typically been able to mitigate tax increases by tightening promotional strategies and revisiting market access channels.
"DraftKings' product evolution should cement its position as a top player in the US sports betting industry even as the market matures," notes Katz.
Upcoming Catalysts for DraftKings
Customer-friendly outcomes during the NFL, the Super Bowl, and the NCAA Men's Tournament led to revenue shortfalls for DraftKings and its rivals. However, this trend is expected to normalize in the future. Katz forecasts that DraftKings will post an EBITDA of $850 million in 2025, rising to $1.5 billion in 2026.
"DraftKings seems poised to convert 90% of its EBITDA into free cash flow next year," concludes Katz. "The reversion of sports outcomes to the mean, coupled with the clear path to cash generation, adds stability and protection to DKNG shares."
In addition to reversion in sports outcomes and consistent cash flow, the advent of live betting volumes in the US is expected to be underrepresented in market estimates, which is bullish for DraftKings' stock prices.
DraftKings is pushing the envelope by investing in artificial intelligence (AI) and unique betting features to improve odds setting, risk management, and customer personalization. The company is also expanding into new states and acquiring competitors to enhance its live betting offerings and cater to the growing demand for interactive, real-time wagering experiences. These strategies position DraftKings well to seize the increasing opportunity presented by the in-game betting market.
- The evolution and enhancement of DraftKings' products, particularly live betting, could give the operator a competitive edge in the igaming industry.
- The acquisition of Jackpocket, an internet lottery courier, could potentially boost DraftKings' earnings in the long term as more states legalize online lottery sales.
- Jefferies analyst David Katz anticipates that the evolution of existing markets, new states legalizing online gambling, and the jackpot acquisition could be favorable factors for DraftKings' growth.
- DraftKings is expanding into new states and acquiring competitors to enhance its live betting offerings and cater to the growing demand for interactive, real-time wagering experiences in sports betting technology.
- The investment in artificial intelligence (AI) and unique betting features could improve odds setting, risk management, and customer personalization for DraftKings in the financial market, particularly within the in-game betting sector.
