DraftKings (DKNG) investors are disappointed by the scale of the company's investment in prediction markets given potential regulatory risks surrounding sports-event contracts, BofA Securities said Friday in a report.
On Thursday, DraftKings shares tumbled in after-hours trading as the company reported a Q3 adjusted loss of $0.53 per diluted share on revenue of $1.33 billion. Analysts polled by FactSet expected a loss of $0.13 a share on revenue of $1.39 billion.
DraftKings' 2027 prediction-market outlook includes roughly $800 million in operating expenses, up from $675 million this year, BofA said. About $50 million of the increase stems from higher fixed costs and the remaining $75 million from additional marketing activity, the report said. Promotional spending in the company's core business is projected to decline by a high-single-digit percentage, suggesting some spending may be shifting to prediction markets, the analysts said.
Given DraftKings' market share in prediction markets and rapid market growth, the company's 2027 revenue forecast for the segment of $700 million could prove conservative, BofA said.
DraftKings is also investing about $40 million in its iGaming product to support future growth, a "prudent decision" given the company's market-share losses over the past two years, the report said.
BofA lowered its price target on DraftKings stock to $23 from $27 and reiterated its buy rating.
Price: 16.87, Change: -6.66, Percent Change: -28.30