DraftKings Surcharge Scheme Could Become Buying Opportunity

Earlier in the month, we reported DraftKings’ plan for a new surcharge on customers’ net winnings implemented at the start of 2025, as mentioned in a letter to shareholders. 

The announced surcharge, which is expected to affect DraftKings’s winning clients in Illinois, New York, Pennsylvania, and Vermont, caused the operator’s shares (NASDAQ: DKNG) to slump 9.78% on Friday. 

The slide caused an 11.79% weekly loss to the stock. The shares entered Monday with a value of 35.40%, lower than the 52-week high. 

To put it in perspective, a financial market with a prolonged price decline of 20% is considered a bear market. 

Some analysts, including Stifel’s Jeffrey Stantial, believe DraftKings could look at the recent drop as a buying opportunity for investors with good foresight. 

Upside Potential Worth Looking Into 

In his new report to clients, Stantial openly acknowledged the skepticism around the US-based vertically integrated sports betting operator’s plan, expressing shared “hesitation regarding potential consumer backlash” to the added surcharge. 

At the same time, he spoke about the stock’s upside potential, saying Stifel has not stopped noticing a “compelling upside bias to out-year estimates, now even further discounted.”

The analyst spoke about the shares’ buy rating with a 12-month price target set at $48, down from $50 while also implying an upside of 50% from the August 2 close.

Analyst Sees “Compelling FCF Trajectory“

DraftKings informed its investors the new tax on winning bets in the four states could be accretive to earnings before interest, taxes, depreciation, and amortization (EBITDA) while adding its $900 million to $1 billion 2025 EBITDA forecast features potential perks resulting from the controversial surcharge. 

The benefits could include a bolstering of the company’s free cash flow position.

Stantial mentioned the “compelling FCF trajectory & upward bias to Consensus estimates” noticed by Stifel, reflective of the ongoing “execution on product, healthy same-state handle/gross gaming revenue growth trends, incremental state legalization, structural hold-rate expansion, sustained rationality in market-wide marketing/promos, and newfound fixed cost discipline & scale efficiencies.”

News of DraftKings surcharge plans took away the attention from the company’s announcement regarding a $1 billion share repurchase program, which represents the operator’s first form of return of capital to investors in over four years.

Recent news that the gaming giant was shuttering its nonfungible token marketplace and putting a stop to the Reignmakers fantasy sports game because of legal issues only added to the distress caused by the stock weakness experienced last week.

Last month, DraftKings also announced it would sell its Vegas Sports Information Network to that company’s founder, Brent Musburger.

In the same report presented on Friday, the company reported a Q2 revenue growth of 26% to $1,104 million, proving it is still a leader among operators in the US.