Flutter’s Q3 2021 Trading Update Reveals Cracks in the Armor

Global gambling group Flutter Entertainment announced a third-quarter trading update today, posting a strong performance and 9% growth mostly driven by sports. However, the markets were unimpressed, and the FTSE100-listed company stock fell 7.3%.

Overall

Flutter Entertainment’s unaudited results for the quarter ended September 30, 2021, revealed revenues of £1.439 billion ($1.967 billion), an increase of 9% over the £1.325 billion ($1.805 billion) the group registered in the third quarter of 2020. Across the verticals, sports betting accounted for £906 million ($1.234 billion), up 13%, while gaming was marginally up 1% at £534 million ($727.6 million). Growth across the board was driven mainly by the increase in the number of average monthly players by 13% to 7.257 million.

UK and Ireland

Average monthly players in Flutter’s domestic market, UK and Ireland, which accounted for 34% of total revenue, grew by 19% to 3.06 million, but that was not enough for the division to register growth, slumping down 5% to £491 million ($669 million), as sports fell by 9% and gaming grew by 2%.

UK and Ireland are the markets likely to face strong regulatory headwinds as the Gambling Act 2005 review in the UK is nearing its completion. It will likely bring unfavorable industry changes such as the end of VIP schemes, ban on gambling sponsorships in sports, affordability checks and online bet-per-spin limits, while Ireland is preparing to regulate the gambling sector with new laws.

Flutter outlined the negative sports betting result was due to a staking decline of 5% that was defined by several factors, including the lack of as many sporting events as the condensed Q3 2020 calendar, the easing of lockdown restrictions which opened up new leisure opportunities for consumers and the company’s enhanced approach to safer gambling.

On top of that, the quarter featured unfavorable sporting outcomes, impacting Flutter’s net revenue margin with 10 basis points to 9.8%, which was also affected by betting patterns revolving around the higher margin “Bet Builder” products.

Gaming posted a 2% growth fueled by a 22% spike in the number of players to help it overcome challenging prior year comparatives, increased competition and enhanced safer gambling protections, while retail registered a 6% decrease despite being open for the entire quarter.

Australia

Sportsbet, the country’s market leader, posted strong performance, with revenue and an average number of players up 20% and 24%, respectively, driven by higher levels of customer retention, which benefited from stay-at-home restrictions.

Even sporting outcomes favored the company, increasing net revenue margin with 40 basis points to 11.1%, but Flutter said the excess was “offset by increased generosity investment.” By the end of the quarter, Flutter released a report showing how Sportsbet outspent its nearest competitor in terms of advertising.

US

In the US, Flutter’s FanDuel, TVG, Stardust, FOX Bet and PokerStars brands posted exceptional performance, with revenue up 85% to £280 million ($381.5 million), with both sports and gaming registering hefty increases, 97% and 65%, respectively. Flutter said FanDuel accounted for 94% of the group’s US total.

Accounting for just under 20% of the group’s total, the US is on a growth trajectory, but to the question of whether expected increases there could offset expected regulatory headwinds on its core market and negative developments on Flutter’s international markets and judging by the market reaction, the answer is no.

International Markets

Flutter registered a 14% increase in sports and a 6% decrease in gaming to finish the third quarter 3% lower year-over-year, impacted by factors, including regulatory product and tax changes in Germany and the reduction in player engagement due to easing of restrictions, particularly affecting poker.

But the most significant development happened after the quarter close on October 1. The launch of the new online gaming market in the Netherlands forced Flutter to leave the country, causing an estimated negative impact on EBITDA of £10 million ($16.6 million) in 2021 and £40 million ($54.5 million) in 2022. That is based on the double assumption that business is resumed in Q3 2022 and it breaks even in H2 2022.

Outlook

The negative impact in the Netherlands paired with unfavorable sporting results in October forced Flutter to revise down ex-US adjusted EBITDA expectations for 2021 to £1.24 billion – £1.28 billion ($1.69 billion – $1.74 billion) range, from previous guidance of £1.27 billion – £1.37 billion ($1.73 billion – $1.87 billion).

In the US, adverse sporting results are expected to impact adjusted EBITDA with £15 million ($24.4 million) and Flutter expects EBITDA loss to be £250 million – £275 million ($340.6 million – $374.7 million) from previous guidance of £225 million – £250 million ($306.6 million – $340.6 million).