DraftKings Inc "Meeting with DKNG: Predicting the Path Ahead" (Buy) Farley

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DraftKings Inc "Meeting with DKNG: Predicting the Path Ahead" (Buy) Farley

Economics in the PM Stack

Where do the economics lie in the PM stack, which has exchanges, market makers, FCM

and customer facing business? DKNG had a 7.8% net win margin in Q1 in its OSB

business, so they see a similar 8% up for grabs (though sharps on prediction markets

may be taking about 1-2 points of those 8 points, which sportsbooks are able to stop).

Today most of the economics go to the brand and to the exchange, but DKNG says over

time, more economics will go to market makers, depending on how well they price the

risk.

Core Business Metrics

DKNG notes that handle is driven by promotional spend and new state launches. We

have written before about why net revenue matters more than handle or GGR. DKNG

says that they believe that gross profit per customer is a more meaningful metric. They

don’t disclose it regularly, but their investor day deck earlier this year showed that every

cohort has grown adjusted gross profit annually since 2018. Soccer is only the 9th or

10th most bet on sport for DKNG, so they hope to grow that with the upcoming world

cup.

Valuation: Buy Rated; $43 Price Target

We value DKNG using the 17x EV/EBITDA forward multiple on our 2027 EBITDA

estimates.

Meeting with DKNG: Predicting the Path Ahead

DKNG’s Event Path in Prediction Markets

DKNG had noted last quarter that they will combine sports OSB revenue with sports PM

revenue going forward when reporting – yet they didn’t changed FY revenue guidance

for the year. That’s because DKNG expects PM to have negative revenue in 2026, much

like the early days of OSB in a new market. DKNG has done very little marketing but will

ramp up before the world cup, with the real spend (and negative revenue) to come with