Paddy Power Betfair boosted by US and online growth in third quarter

Paddy Power Betfair boosted by US and online growth in third quarter

Friday, November 2, 2018 Posted by News Team
Operator revises full-year EBITDA guidance on the back of strong third quarter

The acquisition of FanDuel has boosted Paddy Power Betfair’s results for the three months ended September 30th, in which the operator saw revenue grow to £483m.

Revenue was up 12% on a constant currency basis, and 8% on a pro forma basis, with a strong conclusion to the FIFA World Cup contributing £22m to the total. However, growth for the quarter was impacted by customer-friendly results in Australia, which amounted to a £9m hit on the total.

This growth was driven by a strong online performance, with revenue for the division up 15% year-on-year to £248m, and the US business, which saw revenue grow 22% on a pro forma basis to £53m. 

Looking at the online division, sports posted strong returns, with revenue up 11% to £173m, comprising a 17% increase in fixed-odds betting and 1% growth for the exchange betting product. In the period following the World Cup, revenue was up 13%, with the Paddy Power brand in particular benefitting from strong trading, which the operator credited to an enhanced customer offering and better marketing execution. 

Gaming revenue rose 26% year-on-year to £75m, with improved cross-sell rates resulting from product enhancements credited fro the increase. The operator has also made significant enhancements to the gaming product embedded in its sports apps, which has boosted both the Paddy Power and Betfair-branded offerings. 

The Australian business, meanwhile, posted a 2% decline in revenue to £101m. The decline was blamed on adverse sports results. Efforts are underway to increase revenue through customer acquisition and retention campaigns around the end of the Australian Football League and National Rugby League seasons.

The US business enjoyed a strong quarter following the merger of Betfair US with FanDuel in July this year. Revenue for the division was up 81% to £52m on a reported basis, or 22% to £53m on a pro forma basis. 

This was driven by good underlying growth in each brand within FanDuel group, supplemented by $5m in sports betting revenue. If this $5m is excluded, revenue would have been up 14% on a pro forma basis, comprising 18% year-on-year growth in fantasy sports revenue, 7% from the horse race betting product TVG, and 40% growth from the New Jersey-focused Betfair Casino. 

“While it is still very early in the evolution of US sports betting, we are encouraged by both the indicative demand for regulated sports betting products and by the initial market share that FanDuel has obtained,” Paddy Power Betfair said.

"In retail, our FanDuel sportsbook at the Meadowlands in New Jersey (launched on 14 July) generated over $1.5m of stakes per day in October, making it one of the biggest sports betting outlets in the world. This performance reflects the property’s prominent location (we estimate that approximately 30% of bets are coming from New York residents), customer proposition and the strength of the FanDuel brand. That said, we continue to believe that the key US market opportunity lies online.”

Paddy Power Betfair’s retail division saw revenue fall 4% to £82m, with 2% growth in gaming machine revenue offset by a 6% decline in sports revenue, with good football results offset by adverse horse racing results in July. This had a bigger impact on the Irish shop estate, which was revenue fall 6%, compared to a 1% decline for the UK estate.

Reported EBITDA for the quarter fell 16% to £101m, due to the inclusion of losses from FanDuel’s fantasy sports operations, while pro forma EBITDA was flat on a constant currency basis. 

Total operating costs were up 8% on a constant currency basis, driven by 13% growth in sales and marketing spend, reflecting the launch of US sports betting, as well as increased marketing for the Online and Australian divisions. The company also incurred start-up losses of £4m on the US sports betting business in Q3, as well as a £2m impact from increased betting taxes and product fees. 

As a result of the Q3 performance the operator has revised its full-year EBITDA guidance, which it now expects to be between £465m and £480m, having previously advised it would fall between £460m and £480m. The company also revealed that it expects to invest around £25m in the US sports betting market over the course of 2018.

“Overall, we are pleased with the substantial progress we continue to make against our strategic priorities,” Paddy Power Betfair chief executive Peter Jackson said. “Our continued investment in brands and customer proposition means that all our businesses will exit the year with enhanced competitive positioning. 

"Together with our scale and strong balance sheet this means we are better positioned to face the significant regulatory and fiscal headwinds that apply next year and to capitalise on the long-term industry growth opportunity.”

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