DraftKings shares have been volatile over the past month as investors weigh the potential impact of prediction markets on the company's growth outlook, according to Bank of America. The stock has swung between an intraday low of $23.50 and a high of $30 since May before easing back to around $25, roughly 17% below recent highs, and was down another 4% at about $23.50 on Thursday. Bank of America raised its long-term prediction market total addressable market estimate to $1.9 trillion in annual volume from a prior $1.3 trillion, but made no changes to its earnings estimates and maintained a Neutral rating. The analysts noted that prediction market volumes are accelerating, with DraftKings reporting annualized activity of about $3 billion in May and projections suggesting roughly $9 billion in June, while its market share has increased from around 1.3% in April to over 2% on certain days in June and could potentially reach 5% to 10% by 2027. However, higher volumes may come with increased customer acquisition and promotional costs, with potential losses of $300 million to $550 million this year, above DraftKings' current guidance of $200 million to $300 million. On the core business, DraftKings continues to gain share in sports betting, but concerns remain around potential cannibalization from prediction markets, structural hold volatility, and softness in iGaming trends, where gross gaming revenue growth slowed to low-single digits in the second quarter.
DraftKings IncPrediction market growth and DraftKings' market share gains are positive for demand, but offset by profitability risks and potential losses.
Bank of America Corp