An emerging trend seems to be showing itself in the gambling and gaming market.
Following quickly on the heels of Entain PLC (LSE:ENT) yesterday, Flutter Entertainment PLC (LSE:FLTR) posted its first half results with eerily similar patterns.
Both of the FTSE 100 giants reported growing losses, in the case of Flutter to £122mln, £26mln higher than the same period last year.
Yet, the share price didn’t reflect that headline loss.
In fact, its shares rallied 12% to 10,495p, while Entain moved 6% higher before yesterday’s close.
The inside tip? The upcoming and lucrative American market.
Until recently, online gaming and sports betting had been illegal.
However, changes in US law four years ago opened up the land of hope and glory to the bookmakers, with nearly two-thirds of states legalising the practice.
For Entain, its US hopes lie in its joint venture with MGM Resorts, BetMGM.
For the company behind Paddy Power and Betfair, the name of the game is FanDuel.
FanDuel
FanDuel is Flutter’s American arm, where punters can gamble on sports, horse racing, and fantasy games and take part in an online casino.
In its first-half results, Flutter said its US sports betting market share grew to 51% in the second quarter, boosted by FanDuel’s “superior product, efficient customer acquisition and strong operational execution”.
Chief executive Peter Jackson further highlighted the app’s popularity, adding that it is the number one choice for consumers in 13 out of the 15 states in which it is available.
Not only that, but the group added acquisitions and strategic partnerships, such as Turner Sports, a media company, and Pat McAfee, a sports analyst, which ensure it is “accessing the broad population of sports bettors more quickly, leading to faster adoption curves as each state launches”.
A quick glance at the figures will also tell you exactly why Flutter and investors alike are excited by FanDuel.
Its other brands in the US include FOXBet, TVG, PokerStars and Stardust, and the whole region generated revenues of £1.05bn, of which FanDuel contributed 97%.
Despite its expansion in the US market, Flutter posted an adjusted operating loss of £162mln for the region in the first half, up from £108mln, though it was profitable in the second quarter.
Importantly, much of its future performance relies on the potential of the US market, as more and more states begin to legalise online sports and gaming gambling.
FanDuel’s market share, as well as the fact that the US now accounts for almost a third of the group’s revenue, meant it raised total income targets for the year to £2.5bn from £2.3bn.
Analysts at Peel Hunt are clearly excited by FanDuel’s prospects, stating it is “shooting the lights out”.
“A 51% sports market share, an EBITDA profit in the second quarter, and on course to be profitable for the full year in 2023," Peel Hunt analysts said.
“What once looked like unsustainable success in the US is increasingly par for the course, with positive implications for valuation.”
Richard Hunter, head of markets at Interactive Investor also highlighted the importance surrounding FanDuel after another “successful period”.
“While the unit was loss-making for the half-year, the US turned profitable in the second quarter, underpinning Flutter’s hopes of full profitability for 2023,” Hunter said.
Following Flutter and Entain’s results, key to the resilience of the gaming companies' respective share prices, is to build a presence in the US.
With more and more states legalising online gambling and sports betting, Flutter’s FanDuel will be vital.
The product already is extremely popular where it is available, and that should translate across borders, facilitating further growth.
Changes in legislation across the states will only be good news for gaming companies, which is something Flutter has placed its bets on, probably rightly so.