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Flutter Entertainment has reported a 9% year-on-year rise in revenue to £3.39bn for H1 2022 driven by the rapid expansion of its FanDuel-led US business.

Overall H1 EBITDA fell by 19% to £476m, or by 10% to £608m when excluding the US, as management’s earnings commentary helped trigger a 12% surge in Flutter’s share price.

American dream

The US was the standout performer in H1, where revenue grew by 50% to £1.1bn. Flutter said this growth was the result of efficient multi-state customer acquisition and a “superior” product offering compared to competitors.

Crucially, the US was EBITDA positive to the tune of £16m in Q2, a major milestone on FanDuel’s path to profitability.

The US division reported an adjusted EBITDA loss of £132m for H1 however, a significant 53% increase on the £87m loss recorded in the same period of last year.

This was partly due to a costly sportsbook launch in New York, where the tax rate is particularly high at 51%. FanDuel is the market leader in the Empire State at present, with 53% market share in GGR terms.

US sales and marketing costs increased by 29% to £399m in H1 as the company continued to spend on customer acquisition in both new and existing states.

Sports revenue grew by 58% to £770m, driven by a 102% upturn in sportsbook stakes, while average monthly players climbed by 49% to 2,188.

US gaming revenue came in at £281m, up 31% year-on-year and buoyed by a full six months of revenue from three new gaming states launched last year: Michigan (Q1 2021), West Virginia (Q2 2021) and Connecticut (Q4 2021).

FanDuel represented 97% of US division revenue and 80% of the adjusted EBITDA loss.

“We are particularly pleased with momentum in the US where we extended our leadership in online sports betting with FanDuel claiming a 51% share of the market and number one position in 13 of 15 states,” said Flutter Entertainment CEO Peter Jackson.

“We remain firmly on the path to profitability in 2023, driven by our compelling customer economics and disciplined investment,” he added.

Home discomforts

Away from the US, revenue from Flutter’s domestic UK & Ireland market, which includes Sky Bet and Paddy Power, declined by 4% to £1.09bn as adjusted EBITDA fell by 11% to £321m.

Online only revenue from the region slipped by 13% to £956m, while retail revenue soared by 227% to £136m due to Covid-19 closures in the prior corresponding period.

UK & Ireland online gaming revenue increased by 10% during the reporting period to £418m, boosted by the addition of bingo operator tombola, but online sports revenue slumped by 24% to £538m following a tough comparative period due to the Euros last summer.

Safer gambling measures introduced across the UK & Ireland business during 2021 resulted in a £48m reduction in revenue, according to the FTSE 100 operator.

“In the UK, while the delay in publishing the Gambling Act Review White Paper has been disappointing, we are confident that the safer gambling changes we have already made to date position us well for the future,” said Jackson.

Travel disruption

Flutter’s International segment, which is led by PokerStars, witnessed an 8% decline in H1 revenue to £633m as adjusted EBITDA fell by 31% to £122m.

Strong revenue growth from markets including India, Brazil, Georgia, Armenia and Canada was offset by the £60m impact of previously communicated Covid-related comparatives and regulatory headwinds across European markets.

These included market exits in the Netherlands (£20m) and Russia/Ukraine (£20m), as well as gaming tax changes in the complex German market (£20m).

Up down under

Finally, in Australia, H1 revenue climbed by 5% annually to £612m driven by a 4% increase in sportsbook stakes on the Sportsbet brand and a 10% rise in average monthly players.

Adjusted EBITDA from the country came in 10% higher at £219m. Flutter said the strong performance was driven by the strong retention of customers who migrated online from retail channels during the peak of the Covid-19 pandemic.

The company is braced for regulatory headwinds in Australia, however, due to Point of Consumption tax changes in Queensland, New South Wales and the Australian Capital Territory that will cost an estimated £22m in 2022, rising to £73m for full-year 2023.

After the reporting period, Flutter said H2 trading had started in line with expectations with “no discernible signs of a consumer slowdown”. Despite this, it has pledged to monitor key spend indicators due to the uncertain macroeconomic outlook.

Assuming normalised sports results, full-year EBITDA is also set to fall in line with expectations, at a range of between £1.29bn and £1.39bn excluding the US.

Full-year US EBITDA is forecast at a loss of between £225m and £275m.

London-based investment bank Peel Hunt reiterated its Buy rating for the stock and 14,500p target price.

“If sporting results are as expected, the company should report FY22E group EBITDA in line with market expectations,” said Peel Hunt analyst Ivor Jones.

“However, within this, FanDuel is shooting the lights out, with a 51% sports market share, an EBITDA profit in 2Q22, and on course to be profitable for the full year in FY23E.

“What once looked like unsustainable success in the US is increasingly par for the course, with positive implications for valuation,” he added.

Flutter will host an investor day for its US business including FanDuel on 16 November.

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