MW Morgan Stanley says buy into weakness in Flutter and DraftKings after Kalshi enters parlays market

By Jules Rimmer

FanDuel's parent company, Flutter Entertainment, saw a steep stock-market drop on Tuesday.

The stock-price sell-off in FanDuel's parent company and DraftKings was too severe even as the sports-betting giants faced a new form of competition in the market for parlays, an analyst is arguing on Wednesday.

DraftKings stock $(DKNG)$ tumbled 12% and Flutter Entertainment $(FLUT)$ slumped 10% on Tuesday after the prediction market operator Kalshi launched an offering of sports parlays to coincide with the NFL game between the Miami Dolphins and New York Jets.

Both stocks inched higher on Wednesday.

Morgan Stanley provided an update for investors Wednesday and advised them to buy into the weakness on both as they still detect "multiple avenues for both operators to benefit regardless of where this outcome ends." Morgan Stanley observes more than 40% upside on both DraftKings and Flutter to its respective price targets of $52 and $352.

For Morgan Stanley, the sudden tumble in share prices looks like a knee-jerk overreaction. Management of both companies has rejected the notion of any headwind or negative impact stemming from the developing presence of prediction market players so far.

They also point out that the range of wagers offered by DraftKings and Flutter is more extensive, and that market growth is such that there may be enough for all participants to flourish. Kalshi's traders are a combination of institutional investors, market makers and "sharps" - the term used for professional or sophisticated bettors.

The key to prospects for the sports betting and prediction markets sectors then is the regulatory environment. The Morgan Stanley team point out that if courts determine that the Kalshi offering is legal, then Flutter and DraftKings will offer their own rival products. Already, Flutter has a deal with the CME Group $(CME)$ for prediction contracts.

The note concludes that "regulatory uncertainty is the prediction market's friend whereas clarity should ultimately lead to upside for both DraftKings and Flutter."

Sports betting revenue in America is growing rapidly with revenues north of $14 billion predicted by 2027

There are implications too for Robinhood (HOOD) , the tech platform which has enjoyed a powerful 17% rally in the last week after reporting what Morgan Stanley call "robust prediction market volumes" in the second quarter and boasting that clients traded 4 billion of event contracts since inception in 2024. Morgan Stanley estimates these contracts command very high margins, possibly exceeding 70%. Robinhood also announced plans to expand overseas.

However, as Morgan Stanley's $110 target price and equal-weight recommendation for Robinhood suggests, the implications for the stock are more nuanced. They believe there is a regulatory risk to the forecasts for prediction markets revenue if courts declare that "sporting events contracts" are merely a form of gambling in disguise.

-Jules Rimmer

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October 01, 2025 09:48 ET (13:48 GMT)

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