Merger and acquisition strategy significant for DraftKings in 2025, claims analyst

In the rapidly evolving world of online sports betting, DraftKings finds itself at the forefront, with its shares trading in the mid- to upper $30s. The company's 2025 guidance has been a topic of much discussion, and it is currently trading at 22 times adjusted EBITDA.

The achievability of this 2025 target is seen as the single biggest driver of DraftKings' shares. Deutsche Bank, for instance, has a Hold rating on DraftKings' stock and a $33 price target, based on a multiple of 17.5 times its 2025 EBITDA forecast, with the net cash estimate used to arrive at an equity value of $17 billion.

Looking ahead, DraftKings is expected to focus on mergers and acquisitions as a key strategy. Since its public listing, the company has been aggressive with acquisitions, acquiring Golden Nugget Online in 2022, Jackpocket in 2024, and several smaller assets for technology or customer acquisition purposes. However, there are no specific public expectations or confirmed information about which additional companies DraftKings will acquire through mergers and acquisitions in 2025 or 2026.

The 2025 guidance implies a 46% flow through on the expected incremental net revenue growth in 2025. Ohio and Maryland, according to analyst Santarelli, have the best prospects for near-term (2025) success among New York, Ohio, Illinois, Indiana, Maine, and Maryland. However, 2025 is expected to be void of newly legalized states, with Texas being viewed as the single biggest opportunity on the online sports betting side. Any failure to legalize in Texas sets the process in the state back another two years.

In contrast, New York and Illinois, the two largest states in the discussion, have the slimmest odds of success, according to Santarelli. The opportunities in California and Florida, while significant, are likely different due to the need for tribal partnerships, which are seen as unattractive. As a result, both California and Florida are not part of DraftKings' potential blue-sky opportunity set.

The company faced tough Wall Street guidance in 2024. Failure to deliver 2025 guidance could cast significant doubt on longer-term adjusted EBITDA targets. Yet, DraftKings offers a 4% free-cash-flow yield at the midpoint of 2025 guidance.

In conclusion, DraftKings' 2025 outlook is shaping up to be a critical year for the company, with key opportunities in Ohio, Maryland, and Texas, and challenges in New York, Illinois, California, and Florida. The company's focus on mergers and acquisitions could play a significant role in its ability to meet its 2025 targets and continue its growth trajectory.