Mergers and acquisitions are expected to be a key strategy for DraftKings, which is coming off a tough 2024 in terms of Wall Street guidance.
Deutsche Bank has a Hold rating on the stock with a $33 price target. It’s been trading in the mid- to upper $30s.
According to analyst Deutsche’s Carlo Santarelli, at the midpoint of 2025 guidance ($900 million to $1 billion), DraftKings is trading at 22 times adjusted EBITDA and offering a 4% free-cash-flow yield. The guidance implies 46% flow through on the expected incremental net revenue growth in 2025.
“Given current valuation, as well as the hiccups in 2024 with respect to guidance, we see the achievability of the 2025 target as the single biggest driver of shares. Further, we believe an inability to deliver 2025 guidance will cast significant doubt on longer-term adjusted EBITDA targets of $1.4 billion in 2026, which could be further exacerbated by the current valuation dynamic.”
On the legislative side, Santarelli views Texas as the single biggest opportunity on the online sports betting side in 2025. Any failure to legalize sets the process in the state back another two years.
The opportunities in California and Florida, where tribal partnerships are likely to be required, is likely different than most, Santarelli said. While both states are viewed as significant opportunities, tribal partnerships “are likely to be unattractive, thereby removing both states from the potential blue-sky opportunity set and putting them in a bucket with New York, where the total-area market is significant and profit is challenged.”
Santarelli said the generalist total-area-market investor seeing these states as future opportunities does more for the trading multiple today than the realization of profits will do for the valuation in the future. While the situation on the icasino side “features more shots on goal than that of the online sports betting side,” Santarelli said the prospects for legalization across the majority of the states with some form of a bill at present are low.
“Of the subset of New York, Ohio, Illinois, Indiana, Maine, and Maryland, we believe Ohio and Maryland have the best prospects for near-term (2025) success, though we believe the most likely scenario is 2025 being void of newly legalized states. We see New York and Illinois, the two largest states in the discussion, as having the slimmest odds of success.”
Since its public listing, DraftKings has been aggressive with respect to acquisitions, having acquired Golden Nugget Online in 2022, Jackpocket in 2024, and several smaller assets for technology or customer acquisition purposes, Santarelli said.
Looking ahead, given the strong cash and financial-leverage positions, Santarelli said they expect mergers and acquisitions “to remain a key cog in the strategy for DraftKings, especially in the event achieving guidance targets in 2025 or 2026 appears fleeting.”
Deutsche Bank said the $33 price target is predicated on a multiple of 17.5 times its 2025 EBITDA forecast. It then layers on its 2025 net cash estimate to arrive at an equity value of $17 billion.
