The analyst’s take: Bet365’s 2022-23 financial results

While the most prominent figure in the operator’s report was its £61.2m (€71.0m/$77.6m) loss, Bet365 also recorded significant revenue growth.

Birkin believes Bet365’s growing interest in the US market, as well as its hugely successful Ontario launch, could lead to future growth in regions such as North America and the soon-to-be regulated Brazil.

“Although the company has a reputation for operating in a number of unlicensed markets, it has been clear for a long time that it will seek a licence in any market where it is available and commercially viable to do so,” says Birkin. “Therefore, it’s no surprise to see continued international expansion.

“Their transition to the onshore market in Ontario appears to have gone smoothly, where they’re the clear market leader in terms of sports betting revenues, and we would expect to see the same in Brazil, where they are also the clear market leader.”

Birkin takes a keen interest in Bet365’s US presence, praising its longevity-centred approach.

“Of most interest to me is their positioning in the US market,” he explains. “Whereas a number of other operators rushed into the US sports betting market and are already exiting – Kindred, Pointsbet, and Wynn among others – Bet365 have always taken a more long-term, patient view.

“They have avoided the huge cash outflows that others have suffered over the past few years during the initial fight for market share.”

“Leading Tier 2 operator”

Bet365’s expansion into the US is pitting the company against industry giants already out in front of the market, such as FanDuel and DraftKings.

While Birkin feels it’s a stretch for Bet365 to compete with those market leaders, he feels the Stoke-on-Trent-based operator could make its mark among the Tier 2 operators over the next five years.

“I don’t see Bet365 competing for market leadership with FanDuel or DraftKings,” Birkin poised. “But on a three- to five-year view, I would expect Bet365 to be very much competing with the Tier 2 operators such as BetMGM and ESPN Bet in terms of sports betting. I view the US as a big opportunity for the group.”

He believes the maturing of the US market past its initial high-spending promotional phase will lead to increased focus on product, something that could serve Bet365 well.

“I see no reason why they can’t become a leading Tier 2 operator – especially as the US customer becomes more sophisticated and customer acquisition and retention becomes more aligned to the underlying product offering as opposed to existing brand recognition and unsustainable levels of promotional activity and bonusing.

“The US market is going to be a lot more product-focused over time due to the complexity of the product that is and will be available. In my view, Bet365 have always been a product-driven company and this product-led offering should be a positive for the company in the US over the long-term.”

Bet365’s report strong despite losses

Bet365’s reported losses were in spite of its sizeable sports betting revenue growth, as well as its jump in new customers.

Birkin believes the heavy investment that caused the losses will prove to be beneficial for the operator.

“I view this investment as very positive for the company. Personally, I would be more concerned if there wasn’t a significant increase in investment given the new market entries and shift to regulated markets such as Ontario.”

Birkin also pointed to Bet365’s status as a private company as an advantage, especially in regards to its longer-term perspective.

“In terms of new customers – growing the customer base by 29% year on year, on top of a 48% increase the prior year, is very strong,” Birkin continues. “I think it’s a strong performance in terms of top-line growth, with betting & gaming revenues growing by 19% year on year.

“Gaming has been the strongest driver at 31% year-on-year growth, but sports growth of 15% year on year has still produced the highest growth in monetary terms, increasing sports revenues by around £323m compared to gaming revenues increasing by approximately £216m.

“That said, gaming still only contributes 27% of total revenues, so there’s further scope for them to increase this, which should be a tailwind to further growth going forward.”

International expansion can “offset” UK uncertainty

While some pointed to Bet365’s losses as another example of the UK’s sports betting market stagnating, Birkin challenges that view. He explains that Bet365’s growing global focus could help to cancel out any potential UK struggles.

“Firstly, I’d like to question this idea of a stagnation of the sports betting market in 2023,” Birkin stated. “While that is the rhetoric of the larger listed UK operators, data released by the Gambling Commission suggests the online sports betting market grew by 10% year on year in the first nine months of 2023.”

Birkin believes larger operators have floated the idea of stagnation in the market as an answer to their drop in market share, which is more likely down to increased regulatory pressure.

“We estimate that Bet365 have around 10% market share across the online betting and gaming market in the UK,” Birkin says. “The UK counts for approximately 20% of Bet365’s revenues, so it is a material part of their business.

“But putting that into perspective, a 5% decline in the UK would only be a 1% headwind to the group’s total revenues. So, while the UK remains a key market for the company, the opportunities elsewhere are likely to more than offset any potential weakness in the UK.”

Looking ahead

Looking to the future, Birkin is upbeat about the company’s future. “I view the US as a big opportunity for the group and you can look at Australia as an example of how they are happy to enter a market later and grow organically.”

The company’s focus on innovation is likely to stand it in good stead, especially due to the complexity of product and how Bet365 have continued to innovate in this area.

Birkin certainly agrees: “This is especially true when combined with the lack of pressure to hit any profitability targets. We’ve already seen investor pressure on profitability for US operators over the past year or so and therefore Bet365 are well positioned to capitalise on any pull-back in investment by any of the current larger operators in the US market. That said, we don’t expect the company to be challenging for market leadership in the US any time soon.”