DraftKings is gearing up for a pivotal year in 2025, with analysts highlighting mergers and acquisitions (M&A) as a cornerstone of the company’s strategic playbook. Following a challenging 2024 that fell short of Wall Street expectations, the sports betting giant is banking on strategic moves to regain investor confidence and hit ambitious growth targets.
Deutsche Bank’s Take: Hurdles and Opportunities Ahead
Deutsche Bank analyst Carlo Santarelli has placed a “Hold” rating on DraftKings with a $33 price target, reflecting a cautious yet optimistic outlook. Shares of DraftKings have been trading in the mid- to upper $30s, a range that underscores investor uncertainty about the company’s ability to meet its 2025 guidance. The guidance, which projects adjusted EBITDA of $900 million to $1 billion, translates to a valuation of 22 times adjusted EBITDA and a modest 4% free-cash-flow yield.
Santarelli notes, “The achievability of the 2025 target is the single most significant driver of DraftKings’ shares. Failure to meet these targets would likely cast doubt on longer-term projections, including the $1.4 billion adjusted EBITDA goal for 2026.”
This cautious tone comes after a tumultuous 2024 for the company, where hiccups in guidance impacted investor sentiment. The stakes are high for DraftKings as it attempts to navigate a landscape filled with both potential breakthroughs and legislative hurdles.
Legislative Hurdles: Texas and Beyond
On the legislative front, Texas looms as the most significant opportunity for online sports betting legalization in 2025. However, failure to secure legalization would delay any progress in the state by another two years, creating a ripple effect on the broader market.
The situations in California and Florida add another layer of complexity. Tribal partnerships, which are likely to be required in these states, are seen as less attractive from a profitability standpoint. Santarelli points out that these states might end up in the same category as New York, where high market potential clashes with challenging profit margins.
- Key legislative insights from Santarelli:
- Texas: The most critical market for potential legalization in 2025.
- California and Florida: Viewed as long-term opportunities but hampered by the unattractiveness of tribal partnership arrangements.
- Other states: Prospects for broader legalization remain slim in the near term.
On the iCasino side, the outlook is slightly more optimistic, with a wider array of states exploring legalization. However, the chances of widespread adoption in 2025 remain low, with Ohio and Maryland leading the pack of states with realistic near-term potential.
DraftKings’ History of Acquisitions
DraftKings has a proven track record of aggressive acquisition activity. Key acquisitions include Golden Nugget Online in 2022, Jackpocket in 2024, and smaller technology and customer acquisition-focused deals. These moves have bolstered the company’s market position and technological capabilities, showcasing a clear willingness to invest in growth through M&A.
Santarelli believes this trend will continue, especially if the company struggles to hit its ambitious financial targets. With a strong cash position and manageable financial leverage, DraftKings is well-positioned to execute additional acquisitions as needed.
“M&A will remain a crucial part of DraftKings’ strategy, particularly if guidance targets for 2025 or 2026 appear out of reach,” Santarelli remarked.
Valuation and Price Target
Deutsche Bank’s $33 price target is based on a multiple of 17.5 times the bank’s 2025 EBITDA forecast, layered with its 2025 net cash estimate. This valuation translates to an equity value of $17 billion, reflecting both the potential upside and risks associated with the company’s ambitious growth plans.
What’s Next for DraftKings?
As 2025 approaches, DraftKings faces a delicate balancing act. Legislative breakthroughs, particularly in Texas, could significantly boost its prospects, but challenges in major states like California and Florida temper optimism. Meanwhile, the company’s ability to meet or exceed its financial guidance will likely dictate investor sentiment in the coming year.
At the same time, M&A activity remains a vital lever for DraftKings to drive growth and adapt to shifting market dynamics. Whether the company can successfully execute its strategy and regain Wall Street’s confidence remains to be seen. But one thing is clear: 2025 is shaping up to be a make-or-break year for the sports betting powerhouse.
