Flutter hails localised strategy as revenue climbs to $11.79bn in 2023
Hailing a strong performance in 2023, Jackson highlighted growth in almost all segments at Flutter. Revenue was up across the US, UK and Ireland, and International segments with only Australia reporting a small decline.
As reported in its preliminary results in January, operations in the US were the main driver behind its success. Through FanDuel, Jackson says Flutter holds a market leading position in the country, with activity in the US resulting in positive annual adjusted EBITDA for the first time in 2023.
Flutter’s success in the UK and Ireland was also clear to see, while its International business continues to grow. While the Australia decline is a dampener on what was otherwise a solid year, there is hope for future growth.
In fact, such is Jackson’s and Flutter’s optimism that double-digit growth is forecast across group revenue and adjusted EBITDA for 2024. Flutter said revenue is expected to increase 17.5% and adjusted EBITDA 30.2%, both at midpoint.
“Flutter delivered a strong 2023 performance as we continued to deliver on our strategy,” Jackson said. “This was underpinned by a localised approach to technology and product coupled with the unique scale advantages of the Flutter Edge.
“As anticipated, our number one position in the US has transformed the group’s earnings profile during 2023 as FanDuel delivered a positive US full year adjusted EBITDA for the first time.
“Outside the US we made excellent progress integrating Sisal into our International business, a business. This is a great example of our ‘local hero’ strategy at work and took market share in UKI.”
Flutter shares launch on New York Stock Exchange
The group’s focus on the US stretches beyond actual operations and into the financial world. In January, Flutter commenced trading on the New York Stock Exchange (NYSE) in the US.
This marked the end of Flutter’s secondary listing on Euronext Dublin. Flutter will, however, continue to trade on the London Stock Exchange (LSE) and will retain its premium listing on the exchange.
However, Flutter still has some work to do in relation to the US listing to ensure reporting is fully compliant with GAAP and SEC reporting requirements. This includes “ensuring full segregation of duties” and “re-designing key controls”.
Also of note is training finance and technology staff to ensure they understand their responsibilities regarding the performance and evidencing of key controls over financial reporting. This, Flutter said, will assist with the escalation of any issues or deficiencies that may occur.
Flutter shares closed at $221.99 at the end of trading yesterday (25 March).
“I was proud to see Flutter shares trading for the first time on the NYSE on January 29,” Jackson said. “We have been encouraged by the increased focus from new US investors as a result of our US listing.
“We are working towards a shareholder vote on 1 May to approve our primary listing move to NYSE.”
US revenue tops $4.48bn
Staying in the US, Flutter’s breakdown of its segmental performance in 2023 showed the US led the way by some distance with revenue of $4.48bn, an increase of 40.6% from the previous year.
Sportsbook revenue in the US was 45.9% higher year-on-year and igaming revenue jumped 47.2%. Flutter said sportsbook revenue benefitted from expansion into three additional sportsbook states, a full year’s contribution from 2022’s new state openings and 24.8% growth in pre-2022 states. As for igaming, growth was driven by strong player volumes despite a limited total addressable market.
Looking at US operations as a whole, net gaming revenue market share stood at 53.4%, up from 43.2% in 2022. FanDuel acquired over 3.7 million new betting and igaming players in 2023, 19.0% up from the previous year, with average projected payback period on investment to acquire customers in line with recent years at less than 18 months.
“When combined with the strong contribution from our existing player base, this will drive the long-term profitability of the business,” Flutter said.
Double-digit growth for UK and Ireland and International
Away from the US, there was more success for Flutter in the UK and Ireland. Here, revenue was up 13.7% to $3.05bn, driven by continued expansion of recreational customer base.
Sportsbook revenue in this region was 10.5% higher year-on-year while igaming revenue jumped 18.1%. Overall market share across retail and online was also 2.0% higher at an estimated 30.0%.
“Our continuous focus on our product proposition saw us further enhance our higher-margin Bet Builder and Build-A-Bet parlay products,” Flutter said. “We added exclusive new betting markets, and launched well-received new products like ‘Acca Freeze’ on Sky Bet which drove increased penetration of these high-margin products and benefitted our net revenue margin.
“We also rolled out new igaming features with improved cross-sell journeys for sportsbook customers to igaming products and expanded content, particularly for live casino.”
As for the International business, this covers all other markets outside the US, UK, Ireland and Australia. Revenue here increased by 34.2% to $2.81bn, with Italian-facing Sisal alone drawing $1.22bn.
In addition to Italian growth, Flutter reported a higher market share in Georgia and Armenia, as well as success in Brazil, Spain and Turkey. As for further growth in this segment, Flutter says the recent acquisition of a majority stake in Serbia’s MaxBet will support this moving forward.
“The effectiveness of our International strategy to buy and build podium positions was evident from our strong 2023 performance with growth,” Flutter said. “We continued to focus on targeted investment and a local hero strategy in key ‘Consolidate and Invest’ markets, while optimising the PokerStars business which has a greater presence in our ‘Optimise and Maintain’ geographies.”
Disappointment in Australia
The only segment to report a decline in 2023 was Australia with revenue falling by 7.1% to $1.45bn. Flutter said this was due to a softer racing market environment during 2023 when compared to 2022. The previous year also benefited from higher levels of customer engagement following Covid related restrictions.
Flutter noted a softness in the racing market across the second half of 2023, with this set to continue into 2024. However, there is hope for future success in the country
“We expect the challenging market, along with increased regulatory and compliance costs, to reduce Australian profitability further in 2024,” Flutter said. “However, we believe Sportsbet’s scale, 45% market share, and leadership in brand and product, position us well for the future.”
PokerStars impairment charge hits Flutter
Turning to costs for 2023 and spending was higher in most areas. Cost of sales was the main outgoing at $6.20bn, up 28.9%. Elsewhere, sales and marketing spend climbed 25.4% to $3.78bn, general and administrative expenses 36.2% to $1.60bn, and technology, research and development costs 38.6% to $765m.
Included within the sales and marketing expenses was a $725m impairment charge related to the PokerStars trademark dispute. In Q4, Flutter said that it recognised the intangible asset impairment, reflecting its ‘local hero’ strategy and PokerStars’ presence in predominantly lower growth ‘optimise and maintain” markets.
In December 2023, Flutter chose to move away from the existing capital intensive PokerStars technology. This was with the aim of improving efficiency and performance by leveraging technology and marketing resources.
As a result, Flutter revaluated its asset grouping of PokerStars’ acquired intangible assets. It decided the impact of the lower projected royalty revenue caused by the decision to change the strategy and operational model lowered the sum of undiscounted cash flows to below the book value.
As such, it had to recalculate fair value. The new estimate of fair value is $337m to $533m, depending on assumptions. This suggests PokerStars devalued by at least 57% after the impairment.
“The impairment was primarily driven by an assessment of strategy and operational model aimed at maximising the value of PokerStars’ proprietary poker assets consistent with our International segment strategy to combine global scale with local presence,” Flutter said.
Net loss reduced despite higher spending
After also taking into account non-operating spending of $542m, this left a pre-tax loss of $1.09bn, compared to $295m in the previous year. Income tax payments totalled $120m, with net loss hitting $1.21bn, wider than $370m in 2022.
However, there are more figures to note – namely the impact of foreign currency translation. In the previous year, Flutter reported a negative impact of $896m. However, for 2023, this was a positive $357m.
When also accounting for other finances including fair value of cash flow hedges, investment hedges and sale debt instruments, this had a marked impact on bottom line for Flutter. Total comprehensive net loss for 2023 amounted to $847m, compared to $1.41bn in 2022.
Furthermore, adjusted EBITDA for the year was 45.4% higher at $1.87bn, with an improved margin of 15.9%. This does not include the impact of the PokerStars impairment charge.
Strong start to 2024
As for current performance, Jackson said Flutter has had a good start to 2024. He referenced record Super Bowl engagement contributing to US revenue growth of 55.6% for the period from 1 January to 17 March. FanDuel also launched in North Carolina during this period.
Outside the US, revenue grew 6.3% as the market driven decline in Australia was more than offset by growth in the UK and Ireland and International businesses.
“We believe that our strategy and competitive advantages position us well to continue to grow the business through both organic and inorganic opportunities,” Jackson said.
From the outside looking in
Offering an independent take on the results, Edison Group’s head of consumer Russell Pointon says the results reflect a “nuanced” performance during 2023. Increased costs will be of concern, he adds.
“While the company achieved growth in key metrics such as average monthly players and revenue, it reported a net loss for the year driven by very high exceptional costs totalling $1.68bn including impairment charges,” Pointon said.
“Within this reported net loss, further adjusted EBITDA increased by 45.4%, notwithstanding challenges from customer-friendly sports results in Q4, which prompted investor scrutiny earlier this year. The US segment notably expanded, achieving its first year of positive Adjusted EBITDA, while internationally, a diversified portfolio contributed to overall growth.
“Looking forward to fiscal year 2024, Flutter anticipates continued growth, with revenue projected to increase by 17.5% and further adjusted EBITDA by 30.2% at the midpoint, reflecting confidence in future earnings and cash flow potential.
“Adjustments to leverage ratio targets reflect confidence in the company’s earnings and cash flow potential, positioning it for sustained success. Attention will now shift to the shareholder vote in May to approve the move of the primary listing to the US.”