Forget global conflicts, forget pandemics: there’s nothing that quite shakes up the stock market like earnings reports and quarterly accounting.
And after a year that has been challenging, to some extent, for UK-focused betting operators, Flutter Entertainment is the latest firm to be on the receiving end of a stock market reckoning.
Their share price has fallen a whopping 12.59% last week alone – a rather shocking state of affairs for a FTSE 100 listed operator whose financial viability in the eyes of investors should not, in theory, be in question.
Those pesky quarter three earnings reports are the prime suspect for the fall, which allied to generally grim predictions for the UK economy reveals a company with plenty of trouble and strife going on right now and into the future.
For businesses of a certain size, there’s the ability to try and hoodwink investors when it comes to financial reporting by only writing the headlines that you want them to read.
So, as far a Flutter’s quarter three earnings are concerned, you’ll hear about ‘strong growth’ and ‘increased revenue’ – which is true, with a 13% rise in revenues since the start of summer.
But that was lower than many projections, coming in at the very bottom of the projected 144bn-£160bn range, which amid the challenging conditions – the UK gambling industry is heading for a regulatory overhaul that could inconvenience operators markedly – has spooked city traders.
The firm’s own explanation of ‘customer-friendly sports results’ does little to inspire confidence either, given that most betting operators protect against such outcomes with sensible hedging.
Are there any reasons to be cheerful? Yes: Flutter have increased their customer base of active players in quarter three, while their American adventure continues to pay dividends – more on that later.
But stock market sensitivity should be considered a warning sign for the company and the UK gambling sector as a whole – tougher times, amid regulatory crosswinds, could be in the offing.
Unsporting conditions in the UK sector make it even more important for gambling firms like Flutter to continue to thrive in the burgeoning American market.
More and more states continue to legalise sports betting, while those with a liberal approach are starting to feel the benefits of the mammoth taxable income that the industry generates – New York became the first state to take more than $2 billion (£1.6 billion) in mobile bets in a single month back in October.
Flutter has FanDuel amongst its arsenal of American-facing sports betting operations, and that’s an outfit that continues to perform handsomely: they hold the leading market share Stateside at around 40%.
The holding company has started to make inroads into smaller markets too, acquiring the Serbian leader MaxBet, but it’s the United States that offers the greatest potential for growth – at the time of writing, 37 of the 50 states have legalised gambling with others, including major population centres like California and Florida, in varying stages of reconsidering their currently prohibitive stance.
With tightened regulation in the UK and a conversely more liberal trading environment in America, it doesn’t take Hercule Poirot himself to work out where major companies like Flutter ae going to focus their intent in the future.
Indeed, that became even more obvious this week with Flutter chiefs, with support from the company’s shareholders, opting to delist from Euronext Dublin, Ireland’s stock exchange.
It’s a significant development in a number of ways, not least that one of Flutter’s key weapons is the Irish-based Paddy Power. It also opens the door to Flutter being listed on the New York Stock Exchange, with plans to be up and running there as soon as the first quarter of 2024.
That NYSE move may ultimately become Flutter’s central listing, which would represent a huge shift for a company that has been a mainstay of the UK sector for decades – generating millions in taxable income for the economy and helping to part-fund, via the betting levy, horse racing.
As the firm consolidates in the US, the percentage of their operating profit that comes from the American market will continue to increase – it’s already at more than 33% of their global returns, and sports betting in the United States has only been legalised, barring Nevada and a few other locations, for little over two years.
That could herald a more considered American invasion from other British based operators, which will do the sector on this side of the Atlantic little good at all.