Investing.com -- Shares of DraftKings (NASDAQ:DKNG) declined 3.75%, while Flutter Entertainment (LON:FLTR), the operator of FanDuel, fell 2.4% as analysts at TD Cowen adjusted their outlook on the companies days ahead of the Super Bowl LIX. The downward movement comes after the firm lowered its price target on DraftKings, citing lower projected adjusted EBITDA for the fiscal year 2028.
TD Cowen's analyst Lance Vitanza pointed to evolving tax strategies that have the potential to reshape the online sports betting (OSB) landscape, influencing the firm's decision. The analyst noted that several states are considering increasing tax rates on OSB, which directly impacts the margins of operators like DraftKings. With states like Maryland and Indiana introducing tax hike proposals, the industry could see a divergence in operator performance, favoring those with stronger balance sheets and operational efficiencies.
DraftKings faces increased pressure as higher taxes force trade-offs such as scaling back promotional spending, offering less favorable odds, or prioritizing profitability over growth. This creates a challenging environment for smaller or less capitalized operators, while market leaders like DraftKings are better equipped to weather the pressure.
In addition, TD Cowen highlighted the growing popularity of Same Game Parlays (SGPs) and the associated risks. While SGPs support player engagement and handle growth, they also introduce volatility for operators during periods of adverse outcomes. DraftKings, known for promoting SGPs, may face increased exposure to high payout events, amplifying risk.
The firm also noted that DraftKings is likely to miss implied guidance for the fourth quarter, driven primarily by unfavorable sports results and elevated parlay losses. Despite this, TD Cowen remains slightly ahead of consensus, believing that the Street may have overreacted in cutting DraftKings' estimates.
Reflecting these challenges, TD Cowen has revised its price target for DraftKings. "We are decreasing our DraftKings PT to $51 (was $55) on lower FY28 Adj. EBITDA," stated Vitanza. This adjustment in the price target ahead of the Super Bowl event and amid the evolving regulatory landscape has contributed to the stock's decline in today's trading session.
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