Analysts Love DraftKings Stock, But This New Tax Bill Could Send DKNG Shares Plunging
Valued at a market cap of roughly $17 billion, DraftKings (DKNG) operates as a digital sports entertainment and gaming company. It offers online sports betting, daily fantasy sports, iGaming products including casino games, and retail sportsbooks across the U.S. and internationally. The Boston-based company also develops gaming software for operators, and provides digital lottery services and media content.
DKNG stock went public in 2019 and currently trades 55% below all-time highs. However, the stock has also gained over 150% in the last three years, driven by improving profit margins and steady revenue growth.
DKNG stock fell 6% on Monday, June 2 following the approval of a budget in Illinois that imposes new wager taxes on the industry. According to a CNBC report, Illinois will implement a $0.25 tax per wager on the first 20 million online sports bets annually, rising to $0.50 thereafter.
Truist analyst Barry Jonas called the duties a 'surprise,' noting it's the second consecutive year of unexpected state taxes on betting operators. Jonas expects DraftKings and FanDuel (FLUT) to surpass 20 million wagers, triggering the higher tax rate. Illinois will have among the highest rates nationally under the new plan.
Wall Street has warned that other states may follow Illinois' lead in addressing budget deficits through sports betting taxes. CNBC explained that current statewide digital sports betting taxes range from 51% in New Hampshire, New York, and Rhode Island to 6.75% in Nevada and Iowa. Further, only 27 states, plus the District of Columbia, currently permit online sports betting statewide.
Is DraftKings Stock a Good Buy Right Now?
In Q1, DraftKings reported first-quarter revenue of $1.409 billion, a 20% year-over-year increase. Still, it revised full-year guidance downward due to unfavorable sports betting outcomes that offset strong underlying business fundamentals. Management revised 2025 revenue guidance to $6.3 billion at the midpoint from $6.45 billion, while adjusted EBITDA guidance dropped to $850 million from $950 million.
The sports betting giant generated nearly $103 million in adjusted EBITDA for the quarter while demonstrating continued strength in core operational metrics. CEO Jason Robins emphasized that core value drivers are outperforming expectations, with product enhancements driving higher structural hold rates and more efficient promotional deployment.
The company's adjusted gross margin expanded by more than 100 basis points year-over-year to 45%, reflecting both hold percentages and promotional efficiency gains.
Live betting emerged as a significant growth driver, exceeding 50% of the total handle for the first time in the company's history. Recent acquisitions, including Simplebet and Sports IQ, are contributing to enhanced live betting capabilities, with MLB live handle up 36% year-over-year in April.
DraftKings completed the quarter with $1.1 billion in cash after repurchasing $140 million worth of shares. It expects to generate approximately $750 million in free cash flow for 2025, which will support its $1 billion share buyback authorization.
What Is the Target Price for DKNG Stock?
Analysts expect DraftKings' sales to increase from $4.77 billion in 2024 to $11.08 billion in 2029. Comparatively, adjusted earnings are forecast to expand from $0.24 per share to $3.82 per share in this period.
DKNG stock trades at a forward price-earnings multiple of 22x, which is reasonable. If priced at 20x, the stock is expected to trade around $75 in June 2029, indicating upside potential of 127% from current levels.
Out of the 30 analysts covering DKNG stock, 24 recommend 'Strong Buy,' three recommend 'Moderate Buy,' and three recommend 'Hold.' The average target price for DraftKings stock is $53.48, 60% above the current trading price.
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