DraftKings investors have been waiting for the company to prove that its online betting business can keep expanding while new growth bets start to take shape.
In a Morgan Stanley note shared with TheStreet, analyst Stephen Grambling and his team lowered their DraftKings price target to $39 from $40, while maintaining an Overweight rating on the stock. The new target still implies roughly 60% upside from DraftKings’ May 12 closing price of $24.61.
The target cut was modest, and the broader call remains bullish. Morgan Stanley argues that DraftKings appears to be getting little value from investors for prediction markets, future iGaming legalization, and other growth opportunities that could become more important over time.
DraftKings spending weighs on near-term estimates
Morgan Stanley adjusted its forecasts after DraftKings’ first-quarter commentary and the company’s latest outlook for prediction-market spending.
The bank now expects DraftKings handle growth of about 6% in 2026 and 5% in 2027. It also raised its second-quarter 2026 handle growth forecast to about 8%, helped by better-than-expected April growth and the FIFA World Cup beginning in June.
The tradeoff is spending. Morgan Stanley expects prediction-market marketing investment to be concentrated in the second and third quarters, with $100 million modeled in the second quarter and $125 million in the third quarter. That pushes the firm’s 2026 adjusted EBITDA estimate down to $767 million from $791 million, below the midpoint of DraftKings’ guidance range.
Morgan Stanley also lowered its 2027 adjusted EBITDA estimate to $1.33 billion from $1.34 billion. Revenue estimates moved higher, with the firm now projecting $6.94 billion in 2026 revenue and $8.03 billion in 2027 revenue.
Prediction markets become a key swing factor
The prediction-market push is one of the more interesting pieces of the DraftKings story, even if it creates near-term pressure on profitability.
In the Morgan Stanley research note, the firm said DraftKings’ prediction markets reached an annualized volume of about $1 billion in April, equal to roughly $83 million of notional volume, without marketing or promotions. That suggests the product already has some early traction before the company begins a heavier promotional push.
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Morgan Stanley expects those investments to dampen fiscal 2026 results. The firm also sees a potential longer-term benefit if the spending helps DraftKings build a larger platform while more states consider online sports betting and iGaming legalization.
The bank moved its forecast for Minnesota online sports betting legalization to the second half of 2027 from the second half of 2026. It also pushed its expected Maine iGaming launch to year-end 2026 from the third quarter of 2026.
Core valuation helps support the bullish case
Morgan Stanley’s strongest argument centers on what DraftKings may already be worth without giving much credit to its biggest growth options.
The firm separated DraftKings’ core iGaming and online sports betting business from new markets and prediction markets. Using mature-market multiples, Morgan Stanley estimated 2026 core adjusted EBITDA of $1.09 billion, including $625 million from iGaming and $467 million from online sports betting.
The bank then assigned zero value to prediction markets and future iGaming markets in that framework. Even under that harsher approach, Morgan Stanley said the implied downside was about 15% from the current price cited in the note.
That is the crux of the bullish call. Morgan Stanley sees about 160% upside in its bull case compared with roughly 25% downside in its bear case, giving the firm confidence that DraftKings still has a favorable risk-reward setup.
DraftKings stock still depends on execution
Morgan Stanley’s $39 target is based on a 50/50 blend of an EV/EBITDA valuation and a 10-year discounted cash flow model. The EV/EBITDA approach produces a $37 value, while the DCF produces a $41 value, leading to the blended $39 target.
The firm also noted that DraftKings trades at about 31 times 2026 adjusted EBITDA and 13 times 2027 adjusted EBITDA, while Morgan Stanley forecasts about 45% adjusted EBITDA compound annual growth from 2025 through 2027.
For DraftKings, the next stage of the stock story comes down to whether management can keep the core business moving while absorbing the cost of new growth bets. Morgan Stanley’s latest call suggests that even after a small price-target cut, the bank still sees a much bigger upside case than the market is currently pricing in.
Related: JPMorgan doubles down on stock market message for 2026
