How Strong is DraftKings' Path to Free Cash Flow in 2025?

DraftKings Inc. DKNG is transitioning from a high-growth story to a disciplined, cash-generating business, and 2025 could mark a critical turning point. With a reaffirmed free cash flow (FCF) target of $750 million, the company is signaling that its core business fundamentals, including margin expansion, promotional efficiency and structural sportsbook strength, are beginning to translate into sustainable profitability. Despite short-term volatility from customer-favorable sports outcomes, DraftKings is leaning on strong operational leverage to maintain its trajectory toward long-term cash generation.

In the first quarter of 2025, the company reported $103 million in adjusted EBITDA (up from $22.4 million reported in the year-ago period) while absorbing a $170 million revenue hit due to unfavorable sporting event outcomes. Management projects a significant ramp up in the second quarter, with EBITDA expected to exceed $200 million, supported by sportsbook handle.

Additionally, DraftKings expects its structural sportsbook hold (10.4% in the first quarter) to rise further in the back half of the year, driving improved net revenue margins in the 7-7.5% range. These gains, along with optimized promotional spending, are expected to add $50 million in revenues and $37 million in EBITDA in 2025. Margins continue to be a bright spot, with the company expecting an adjusted gross margin of 46% in 2025, reflecting a rise of more than 300 basis points year over year.

However, the operating environment remains complex, with regulatory headwinds such as Maryland’s tax hike on sports betting and Jackpocket’s exit from digital lottery operations in Texas and New Mexico contributing a combined $30 million drag on revenues and $26 million on EBITDA.

Even so, the company maintains a tight grip on capital discipline. DraftKings expects a $100 million gap between adjusted EBITDA and free cash flow, supported by low capex and controlled working capital requirements. With stock-based compensation expected to stay at 6% of revenues and $1.1 billion in cash on the balance sheet, the company appears well-positioned to meet its 2025 FCF target.

DKNG’s Price Performance, Valuation & Estimates

DraftKings’ shares have gained 24% in the past three months compared with the industry’s growth of 40.5%. In the same time frame, other industry players like Accel Entertainment, Inc. ACEL, Melco Resorts & Entertainment Limited MLCO and Boyd Gaming Corporation BYD have gained 23.6%, 84.9% and 33.2%, respectively.

DKNG Three-Month Price Performance

DKNG stock is currently trading at a premium. It is currently trading at a forward 12-month price-to-sales (P/S) multiple of 5.31X, well above the industry average of 3.66X. Conversely, industry players, such as Accel Entertainment, Melco Resorts and Boyd Gaming have P/S ratios of 0.75X, 0.73X and 1.67X, respectively.

The Zacks Consensus Estimate for DraftKings’ 2025 earnings per share has been revised upward, increasing from $1.40 to $1.46 over the past 30 days. This upward trend indicates strong analyst confidence in the stock’s near-term prospects.

DKNG EPS Trends

The company is likely to report solid earnings, with projections indicating a 239.1% rise in 2025. Conversely, industry players like Accel Entertainment and Boyd Gaming are likely to witness a decline of 6.6% and 0.8%, respectively, year over year in 2025 earnings. Meanwhile, Melco Resorts’ earnings are likely to increase 52.6% year over year in 2025.

DKNG currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research