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Shares in Entain traded nearly 4% higher this morning (17 April) after the operator revealed its Q1 2024 results were “in line with expectations”.

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During the earnings call, interim CEO Stella David said she wanted to address a few points head-on. 

David said the search for a new CEO is progressing well, that she’s happy to take over as chair from Barry Gibson, and that the capital allocation committee’s review of whether to sell certain assets remains ongoing. 

No further detail on potential M&A deals was forthcoming, however, as David concluded: “We will update the market as appropriate, so there’s nothing more to add at this stage.”

“An encouraging start”

David described Entain’s Q1 2024 results as an “encouraging start to 2024”.

The operator said net gaming revenue (NGR), including its 50% stake in BetMGM, grew 6% year-on-year on a constant currency basis, but fell 3% when adjusted on a pro-forma basis. 

Despite the decline, Entain said the results met expectations, while the challenges it faces remain.

David described the UK as a “market in flux”, with online NGR down 9% in Q1, “primarily due to the complexity that has crept into our customers’ journeys as we implemented regulatory changes.”

David added that Entain is working on improving the customer experience, but the operator also revealed that it expects a return to growth only towards the end of this year.

On a more positive note, CFO Rob Wood said that Entain is satisfied with the performance of Entain joint venture BetMGM. 

He highlighted that five out of the past six weeks were among the top seven best gaming weeks in the history of the business.

He also acknowledged the strong growth numbers posted by some competitors but emphasised that as long as BetMGM stays on course with its plan, the company is confident in achieving its target of $500m in EBITDA in 2026.

A fresh challenge

The Netherlands, meanwhile, presents Entain with an additional challenge.

Yesterday (16 April), the country’s House of Representatives passed a vote in support of banning online gambling advertising, along with a proposed ban on “high-risk” gambling products such as online slots.

This, David said, proves that it’s another market with “a lot of volatility”.

“I think we feel that we have covered the Netherlands risk well, so we don’t feel exposed there,” she said, however.

CFO Wood added to this by highlighting the proactive measures Entain implemented last year, noting that the company voluntarily adopted stricter measures compared to others in the market. 

“Our approach has resulted in a player base that leans more towards recreational gaming. As a result, our average spend per player is notably lower than the market average,” he explained.

This positioning provides Entain with some level of “insulation” from potential impacts, he added.

“No time to deliver a credible turnaround”

While the market initially demonstrated some level of support for Entain, Regulus Partners analyst Paul Leyland expressed scepticism about the company’s trajectory.

In a note sent to investors, Leyland acknowledged that Entain had “no time to deliver a credible turnaround” since the departure of its former CEO, but stressed that “a globally spread digital-first gambling business should not be delivering basically flat revenue.”

He suggested that that Entain faces three key strategic challenges contributing to its underperformance. 

Firstly, its historical focus on consolidating betting-led brands catering to older male demographics has left it poorly positioned to capitalise on shifting consumer trends, such as the rise of younger cohorts and changes induced by lockdowns.

Secondly, Leyland views the company’s reliance on operational efficiencies and VIP management for growth as insufficient in the face of evolving market dynamics, necessitating a shift towards technological capabilities and more inclusive customer strategies. 

Finally, he said the competitive landscape is evolving rapidly, with emerging players disrupting traditional benchmarks and regional markets becoming increasingly fragmented.

“Historically, sound operations management within the tram lines of regulatory risk tended to decide success or failure, with M&A scale and operational synergies appearing to offer easy momentum to disguise flagging secular growth.”

Direction needed 

“However, customers and markets are now far more complex than this simple bottom-up business approach allows,” Leyland added. 

Nonetheless, he believes that “Entain has the scale, diversification, and middle-management expertise to deliver a turnaround.”

In conclusion, he stressed that the company “now needs a level of (lonely, nervous, terrified) senior strategic leadership and direction that it has never really had to prevent dis-synergies from forcing the pieces to fall apart.”

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