This gambling stock really played its cards right in lockdown

Betfair owner’s Q3 results show it is moving at a blistering pace, but what does the future hold?

It has been a barnstorming third quarter for betting firm Flutter Entertainment (LSE:FLTR), driven by significant revenue growth across each of its brands.

A number of external tailwinds have contributed to the results of the firm, which owns Paddy Power, Betfair and Sky Bet.

These include the return of major sporting events and the previous lifting of the lockdown, which enabled the reopening of physical betting shops.

However, the main driver of the turbocharged performance comes from the group’s acquisition activity, coupled with targeted promotional activity in key areas.

One of the most promising developments is the US, where Flutter now has a 46% market share of online sports betting and a total market share of 29% in the states in which it operates. 

The FanDuel brand is growing apace, with projected gross gaming revenues of $1.1 billion (£830 million) for the year and with a 5.5 year partnership deal signed with Turner Sports. That will put the brand in front of 90 million households via Turner’s TNT sports television network. 

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Such growth comes at a cost, with investment in customer acquisition leading to a projected earnings loss of between £160 and £180 million, higher than the previously guided range of £140 to £160 million. 

However, the quarterly revenue growth of 82% to £161 million is an early justification to a part of the business which already represents 12% of overall revenues.

Elsewhere, the numbers are also moving at a blistering pace. Paddy Power sports revenue growth was 32% in the quarter, due in part to strong promotional activity, the integration of BetEasy in Australia helped revenues improve by 76% and there was also progress at the PokerStars and Sky Betting Group units.

For the group overall, this led to sports revenues growth year-on-year of 32% for sports revenues, 21% for gaming revenues and 27% in total. Flutter has as a result increased earnings guidance excluding the US to £1.27 billion to £1.35 billion, from a previous range of £1.17 billion to £1.32 billion.

From a broader perspective, although perhaps less of an immediate issue, is the ongoing threat of intervention by either regulators or governments. 

The gaming industry is a traditionally easy target for authorities needing to raise taxes and, on the other side of the epidemic, this could become a focus as governments look to repair their bruised financial positions following the major costs of the pandemic. 

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Furthermore, this is an intensely competitive industry, especially in the US where Flutter is building both a presence and a reputation, but where attitudes to betting can wax and wane.

Even so, Flutter is currently enjoying some explosive growth, which has been reflected in the performance of the shares. 

Up 136% since the March low and ahead by 41% in the year to date, the anticipation for this level of progress has been high. 

Over the last year, the shares have added 58%, which compares to a decline of 14% for the wider FTSE 100 index.

The market consensus of the shares does not currently reflect the optimism, largely on competition concerns, and as a strong ‘hold’ may also be a sign that the shares are considered to be up with events. If this level of growth is maintained over coming quarters, however, it will inevitably lead to another rerating of Flutter and its prospects.