Entain shares slide amid concerns online slowdown continues into 2023

The business reported an 18% year-on-year increase in net gaming revenue for the first half of the year.

However, online revenue was down 7% year-on-year.

Entain said this was due to a weaker macroeconomic environment, leading to customers spending on average 5% less during the period than they had the year before.

“As a business, we are relatively resilient to cyclical macroeconomic effects,” chief executive Jette Nygaard-Andersen said. “However, no business is completely immune. 

“We’ve seen some moderation in the rate of spend by customers, resulting in lower underlying growth across many of our markets versus our expectations earlier in the year.”

Chief financial officer Rob Wood noted that online revenue was “ultimately behind our expectations from earlier in the year, due to a couple of headwinds”.

“Firstly, while our business is resilient to weakening consumer sentiment, we are not immune to it, so it’s not surprising,” he said.

“Our active numbers are strong, but we estimate that spend per head is down around 4-5% points. In spite of the gloomy economic headlines and backdrop, our strong activities suggest that our customers are still playing with us, but they’re just spending at around 95% of what they were previously.”

Wood added that the below-expectation online revenue was unlikely to be a one-off. Instead, he said it may continue for the rest of 2022.

“As we plan ahead, as macroeconomic impacts are cyclical, we think it’s prudent to assume they may persist across the balance of the year,” he said.

Kiranjot Gerwal, analyst at Bank of America Global Research, went further, arguing that “this tougher environment will also dampen” growth for 2023.

The business also continued to implement stricter affordability checks in the first half of 2022, ahead of the expected release of the Gambling Act White Paper. However, Wood said that the economic environment, rather than the impact of these checks, better explained lower spending, as stakes declined for casual customers as well as high rollers.

Besides these factors, Wood added that the business must also “digest the delay in Netherlands licensing”. While Entain – which had withdrawn from the country just before its market opened on 1 October – had initially expected to receive a licence in the second quarter of 2022, it now expects to have to wait until Q4 for approval.

However, the business should have access to the Dutch market sooner, due to its planned acquisition of BetCity. Nygaard-Andersen described the acquisition as a “classic Entain deal”, and said that the business was as “happy as ever” to perform mergers and acquisitions, despite the economic environment.

Wood did note, though, that year-on-year online comparisons should improve in Q3 and especially Q4, due to the end of lockdown effects and weak trading margins in late 2022.

Growth in Brazil was also below expectations for Entain, due to what Wood called “enhanced competition”.

Shore Capital said in its note on the earnings that it expected a decline in online revenue year-on-year, but that the “magnitude is slightly worse than we had pencilled in”.

The operator’s share price initially declined by 11.5% from opening to £9.99 per share just after noon today. However, from there it rebounded to £10.99, which was down 3.6% from opening.

Meanwhile, Shore predicted that Entain’s 2023 earnings before interest, tax, depreciation and amortisation (EBITDA) “are likely to remain around the £1.1bn level”, which would be up from its expectation of around £960m for this year, though this would be partly due to acquisitions.