[GAM]“Flutter, the star of the dawn of American sports betting”… Seething bullish theory①

This article is a premium article published on GAM (Global Asset Management), a ‘helper for overseas stock investment’, on November 27th at 4:31 PM. If you sign up for membership at GAM, you can view premium articles on over 9,000 overseas stocks.

[서울=뉴스핌] Reporter Lee Hong-gyu = The bullish theory on Wall Street surrounding Flutter Entertainment (stock code: FLUT), an online sports betting company listed on the U.S. stock market, is intensifying to the point where it can be said that it is boiling over. While the United States, which is considered the world’s largest potential market, is still considered to be in the early stages of legalizing online sports betting, Flutter is showing remarkable growth one after another in recent performance based on its strong position.

1. Majority share

Flutter is an Irish company originally formed in 2015 through the merger of Ireland’s Paddy Power and Britain’s Betfair. However, in recent years, as the U.S. market has grown rapidly and regulatory policies have changed favorably, management focus has shifted to the United States. Accordingly, the management headquarters was relocated to New York, and the main listing site was changed to the New York Stock Exchange on May 31 of this year. It holds a 51% share of the U.S. market through its subsidiary called FanDuel.

Even before changing its main listing in May, it was listed in the United States on January 29 of this year as a multiple listing on the London Stock Exchange (LSE). At the time of multiple listing, the stock price was $205. It is currently at $275.74, up 34% from the time of multiple listing when U.S. trading first began. Of course, because it was previously traded in the U.S. over-the-counter market in the form of ADR, there is continuity in price data on the chart. Therefore, if we look at it since the beginning of the year, including before multiple listings, the increase rate is 54%.

The reason Flutter’s stock price has risen significantly this year is due to expectations for growth in its U.S. business. After the U.S. Supreme Court abolished the federal law called PASPA (enacted in 1992), which effectively banned sports betting across the United States in 2018, each state was given the authority to legalize sports betting independently. As more and more places are legalizing online sports betting for purposes such as securing tax revenue, Flutter’s U.S. business is also naturally gaining momentum.

The reason Flutter is already able to occupy a 51% market share in the US market, which is still in the early stages of legalization, is because of its subsidiary called FanDuel. FanDuel is an American sports fantasy and betting platform acquired by Flutter in 2018. Even before the abolition of PASPA, it had strong brand recognition in the United States in the field of fantasy sports (games in which virtual teams compete against each other based on the game records of real players, operated in a non-betting format before the abolition of PASPA). For this reason, easy infiltration was possible in the early stages.

*Flutter’s sales composition is divided by region. ①United States (38.5%) ②United Kingdom and Ireland (26%) ③Australia (24%) ④International (11.5%) Regional performance includes sales generated not only from sports betting but also from online casinos and poker (known as iGaming). FanDuel’s performance is reported as an integrated part of the United States. Although the proportion is not specifically reported, it is estimated that FanDuel contributes most of the U.S. performance.

Flutter’s performance is a surprise every quarter. In the third quarter of this year (July-September, announced on November 12), sales increased 27% compared to the same period last year to $3.248 billion, while EBITDA increased 74% to $450 million. Final profit/loss per share was 43 cents in surplus, up from a 10 cent loss the previous year. All figures exceeded analyst consensus. In addition, the average number of monthly users increased by 16% to 112,920, and the EBITDA margin was 13.9%, an increase of 380bp compared to the previous year.

2. 3 key indicators

Looking closely at this year’s third quarter performance, Flutter’s U.S. business performance shows notable growth in several key indicators. First, the return on investment is being achieved within 18 months. Return on investment means that the cost of attracting one new customer (including marketing and promotion costs) is recovered within one and a half years through sales from that customer. It is an indicator that determines the efficiency and profitability of the customer acquisition strategy.

The previous investment recovery period was within 12 months. The reason 12 months was extended to 18 months was because marketing costs, such as large-scale promotions, were actively invested to expand the business. However, 18 months is significantly shorter than competitors such as DraftKings (DKNG), BetBGM, and Caesars Entertainment (CZR), which last over 20 months. Flutter plans to shorten this time to 12 to 15 months through marketing cost reduction measures.

*Flutter’s LTV (Life Time Value) is estimated at $1,800 to $2,000, significantly exceeding the industry average of $1,200 to $1,800. LTV refers to the total revenue brought to a company during the entire period that one customer uses the service. In the betting industry, this indicator is considered an important winning indicator. For example, if a customer bets $100 per month for three years and the company earns a 10% commission, this customer’s LTV is $360 ($100 x 10% x 36 months).

Flutter’s FanDuel smartphone application screen [사진=블룸버그통신]

The second is the ‘highest betting volume per minute compared to Super Bowl LVII (meaning the 57th, held in February of last year).’ The Super Bowl is the final match to determine the champion of the NFL, the American professional football league, and is the largest sporting event in the United States held every February. The betting volume per minute compared to Super Bowl LVII means comparing the betting volume per minute during the 57th Super Bowl game held in February 2023 with the record in this year’s NFL regular season game. The Super Bowl is the single game with the most bets of the year, so it was used as a reference point.

Therefore, the highest number of bets per minute compared to Super Bowl LVII means that more bets were placed on a typical NFL regular season game than on the Super Bowl, setting a record high. Furthermore, the fact that the record surpassed this in the regular season means that Flutter’s betting platform has grown accordingly.

▶Continued from part ②

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