DraftKings and Flutter Stocks Downgraded on Prediction Market Risks
Bank of America Securities analyst Shaun C. Kelley downgraded DraftKings Inc (NASDAQ: DKNG) and Flutter Entertainment (NYSE: FLUT) ahead of their earnings reports due to increasing challenges in the sports betting industry.
Downgrades and Price Target Adjustments
- DraftKings was downgraded from Buy to Neutral, with the price target lowered from $48 to $35.
- Flutter was downgraded from Buy to Neutral, with its price target reduced from $325 to $250.
Key Concerns Highlighted by Kelley
Kelley noted several factors that could negatively impact DraftKings:
- Unfavorable sports outcomes
- Underperformance in iGaming
- Tax-related headwinds
"Relentless headwinds could recalibrate long-term earnings."
The analyst warned that DraftKings’ previous assumption of a stable structural hold appears less certain, with third and fourth quarter sports results potentially causing volatility in their financial performance. Kelley emphasized that DraftKings' model is "highly sensitive to Hold."
Impact of Prediction Markets
Kelley highlighted prediction markets as a significant emerging challenge, suggesting they could disrupt the sports betting narrative in the near term. He added that even without other pressures, the stock downgrade would occur due to the impact of prediction markets alone.
"Additionally, we think prediction markets present a challenging near-term narrative."
"Even without the other headwinds, the stock would get downgraded solely on prediction markets."
Polymarket and NFL Betting Market
The coming Q3 results and guidance will be critical in revealing which companies are leading the NFL betting market amid these challenges.
Author’s summary: Analyst Shaun Kelley downgraded DraftKings and Flutter citing growing risks from prediction markets and other headwinds, warning of potential volatility in sports betting revenue and long-term earnings.
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