TLDR
- DraftKings shares fell 21.3% on Friday to a new 52-week low after a guidance cut.
- The company expects $900 million to $1.05 billion in prediction market losses through 2027.
- JPMorgan, UBS and Stifel all downgraded the stock and lowered price targets.
- DraftKings added about 1 million prediction market customers in three months.
- CEO Jason Robins says the company wins no matter how future court rulings go.
DraftKings plans to spend heavily on its prediction markets business through 2027, and Wall Street is now debating whether that bet will pay off. Three major banks downgraded the stock after the company released its third-quarter results.
The shares fell 21.3% on Friday to a new 52-week low. The drop came after DraftKings cut its 2026 outlook and disclosed the expected losses tied to prediction markets.
The company said the business could generate between $900 million and $1.05 billion in combined adjusted EBITDA losses through 2027. That figure is now the main point of debate among analysts.
The Price of Growing Prediction Markets
DraftKings lowered its 2026 core revenue guidance to $6.35 billion to $6.55 billion. Its earlier forecast was $6.5 billion to $6.9 billion.
The company also cut its adjusted EBITDA forecast to $175 million to $275 million, down from $700 million to $900 million. Chief Executive Officer Jason Robins said about 60% of a roughly $100 million cut in core adjusted EBITDA guidance came from unfavorable sports results. The rest was linked to higher spending to win online casino customers.
DraftKings added about 1 million prediction market customers in three months. More than 1.6 million people have used the product this year, and management said retention and trading activity are similar to its sportsbook users.
Stifel cut the stock to Hold from Buy and lowered its price target to $21 from $32. Analyst Jeffrey Stantial called DraftKings a “show-me story” and said sentiment could take several quarters to improve regardless of legal outcomes.
JPMorgan moved to Neutral from Overweight and cut its target to $21 from $30. It also removed the stock from its Analyst Focus List, citing uncertainty over profits and competition.
UBS cut its rating to Neutral from Buy and lowered its target to $22 from $48. Analyst Robin Farley said it is “difficult to place meaningful value on the prediction markets business given uncertain regulatory outlook.”
Analysts Question the Payback Math
JPMorgan said the company’s 2027 core earnings forecast implies about 75% incremental adjusted EBITDA flow-through. That compares with a historical rate of 30% to 40%, leaving little room for weaker results or extra spending.
Stifel noted that California and Texas make up nearly half of DraftKings’ serviceable prediction market. That exposes the business to state restrictions, changes to market-making rules and stronger promotional competition.
Deutsche Bank analyst Steven Pizzella kept a Hold rating but cut his target to $22 from $28. “Volume increasingly appears real; the debate is now what that volume is ultimately worth and how much stays with DKNG,” he wrote.
Not every firm turned cautious. Macquarie kept its Outperform rating, saying higher spending reflects stronger than expected customer growth, while Truist kept its Buy rating without assigning value to prediction markets.
Citizens JMP analyst Jordan Bender compared the plan to DraftKings’ sportsbook expansion in 2022. “This feels like that moment again,” Bender wrote.
Robins has said the company wins either way. At an October conference, he called the market reaction a “weird disconnect,” noting that good prediction market news has hurt the shares while bad court rulings have lifted them.
DraftKings’ projections assume a possible Supreme Court ruling by mid-2028. The company expects its 2026 prediction market customers to have paid for themselves by then, with the 2027 group more than halfway there even if sports contracts are banned.
If sports contracts stay legal, DraftKings expects these customers to produce more than $1 billion in gross profit in 2028. If they are banned, the company said it could cut marketing and move customers to other products.
