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Flutter raises expectations amid 30% revenue growth in Q3

| By Robert Fletcher
Flutter Entertainment raised its earnings guidance after it reported a 30% year-on-year pro forma increase in revenue for Q3, powered by growth within all of its divisions except of UK and Irish retail.

In a trading update, Flutter said total revenue for the three months through to 30 September amounted to £1.33bn (€1.49bn/$1.76bn), up from £1.04bn in the same period last year.

Analysing the performance of each of Flutter’s divisions, the core Paddy Power Betfair business saw overall revenue climb 9.0% year-on-year to £351m, with sports revenue up 5% and gaming revenue 31%.

Growth here was primarily due to the performance of online, where revenue was up 12.6% to £278m. This, Flutter said, was driven by a 51.0% rise in average daily customers, as well as the launch of its ‘Unified Gaming Experience’ which combines all casino content into single customer propositions for Paddy Power and Betfair customers.

However, Paddy Power Betfair retail revenue slipped 1.3% to £74m, due to the impact of continuing novel coronavirus (Covid-19) restrictions in place across the UK and Ireland. Some 97% of retail sites were open in the period due to the relaxation of measures, but local restrictions meant some shops had to close for at least part of the quarter.

Retail gaming revenue was up 22%, though sports betting revenue fell 9%.

Elsewhere, revenue from the Sky Betting and Gaming (SBG) business increased by 26.2% to £231m. Sports revenue was up 26%, helped by a 6% increase in sportsbook stakes and good underlying customer activity during the quarter.

SBG gaming revenue also hiked 27% in Q3 due to recreational customer growth, with Flutter saying average daily customers was up 44% year-on-year. Flutter also noted the Sky Vegas gaming platform is now integrated with PokerStars’ ‘Group Gaming Network’, which it said will increase the speed with which additional gaming content can be provided to customers.

Switching attention to the PokerStars business and revenue was up by 5.0% to £262m, due to a 6% growth in gaming revenue and 3% rise in sports revenue, though this figure was well below Q2. Average daily gaming customers climbed 23%, with Flutter saying just over a third of players acquired or reactivated in Q2 continued to play on PokerStars’ casino and poker platforms.

Though poker revenue fell 10% and returned to pre-Covid-19 run-rates, this decline was more than offset by a stronger performance in casino, where revenue was up 32% year-on-year.

Meanwhile, in Australia, revenue from the Sportsbet business rocketed 76% to £320m, making it Flutter’s second highest source of income behind Paddy Power Betfair. The operation is solely focused on sports betting, with Flutter yet to roll out gaming services in the country.

Flutter highlighted a number of key developments in Australia, including an 86% increase in average daily customers during Q3, as well as a shift of players from retail to online as local lockdowns and other Covid-19 restrictions remained in place.

In addition, the migration of BetEasy customers over to the Sportsbet platform in September, ahead of the key Spring Carnival period, had a major impact on revenue growth. To date, customers accounting for over 90% of BetEasy’s revenue in the 12 months prior to migration have engaged with Sportsbet.

However, it was in the US where Flutter saw the most growth, with revenue here jumping 82% to £161m for the quarter. Sports revenue was up 36%, but gaming revenue rocketed by 299% year-on-year, with some 1.8m real-money active customers engaged across all of its platforms in the country.

Sportsbook stakes hiked 155% to £1.25bn, with stakes in existing states more than doubling. Net revenue margin was down from 5.2% in Q3 of 2019 to 2.1%, due to increased investment in customer acquisition on the back of better-than-forecast new player engagement launched ahead of National Football League season.

In addition, Flutter said over half of the margin reduction reflected strategic investment ahead of the return of sports following the Covid-19 shutdown, as it focused on key promotions such as FanDuel’s ‘Spread the love’ campaigns and ‘Odds Boost’ offers.

In terms of gaming, revenue increased to £62m after what Flutter described as “excellent customer engagement” in Q3, with average daily customers up more than five-fold.

Flutter also used the trading update to highlight a number of key developments in the US in Q3, including that it acquired over 450,000 new customers across the country during the period, with FanDuel active sportsbook players doubling year-on-year.

In terms of new launches, FanDuel’s online sportsbook went live in Illinois, with the brand also moving into Tennessee after the quarter and launches in both Michigan and Virginia planned in the coming months.

The operator also agreed new strategic media and marketing deals with Turner Sports and sports radio group Entercom, both of which were brokered through its FanDuel business.

“Flutter’s performance in the third quarter exceeded our expectations in both sports and gaming,” Flutter chief executive Peter Jackson said. “Our strong trading continued as we grew market share in key regions while retaining our commitment to safer gambling practices.

“During the quarter we continued to expand our recreational customer base while bringing our businesses together.”

Looking towards the rest of the year, Flutter said assuming normalised net revenue margins remain and there is no major disruption to sports calendars, group earnings before interest, tax, depreciation and amortisation (EBITDA), excluding the US, should be between £1.28bn and £1.35bn. This is higher than the original forecast of £1.18bn to £1.33bn.

In the US, Flutter said it anticipates generating more than $850m in net revenue due to better-than-expected new customer volumes, but associated investment means it now expects an EBITDA loss in the US of between £160m and 180m.

“We are now a truly global business with significant scale,” Jackson said. “As such we are in a unique position to respond to the many opportunities we see across our growing markets.

“Looking ahead, whilst the outlook with respect to Covid-19 remains uncertain, we are confident that our business is well positioned to capture further growth in a sustainable and responsible way.”

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