The Entain share price has remained fairly flat, but the company’s diverse business and the strength of its US market could provide a boost during the NFL off-season. Analysts are confident about its fundamentals going forward.
The house always wins! For sports betting operator Entain [ENT.L] fiscal 2021 ended on a positive note. Though the US sports season is slowing down, the company’s varied and geographically diverse offering should ensure revenues continue to grow, expect analysts and the company alike.
Yet, the Entain share price doesn’t reflect the same confidence. It gained slightly following the full-year earnings report on 3 March, rising to 1,611p. The stock is performing better than it was a year ago, but has fallen from a 52-week high of 2,500p on 22 September to close 28 March at 1,643.5p.
Entain reported total revenue of £3.83bn for the 12 months to the end of December, up 8% from 2020. Net gaming revenue (NGR), which reflects the amount of money customers bet minus the amount they win, was up 7% from 2020 to £3.89bn, with online NGR up 12%, the ninth consecutive year of double-digit growth.
BetMGM boost sales in 2021
The company’s standout performer was arguably BetMGM, a 50-50 venture in the US with MGM Resorts International [MGM]. BetMGM’s NGR in fiscal 2021 was around $850m, up five times year-over-year. Entain announced back in January that it was upgrading its 2022 revenue forecast for BetMGM from $1bn to $1.3bn and hopes for it to achieve positive EBITDA in 2023.
Growth in the BetMGM business is driven in part by territories in North America relaxing gambling rules. As of the FY21 earnings call, BetMGM was live in 21 markets, with a potential reach of just over one-third of the US population. It’s been able to establish itself as the market leader for iGaming and the second-largest operator for sports betting, with a 29% and 18% share of these markets, respectively.
NFL off-season unlikely to hamper Entain
BetMGM should see another strong quarter for the three months to the end of March. Entain will be providing a Q1 2022 trading update on 7 April, but BetMGM is likely to have benefitted from NFL fans betting big on the Super Bowl in February.
With the NFL now off-season, a lack of major sporting events in the US could have an impact on Entain, especially in Q2 2022. Analysts don’t think so, because the company also owns UK brands such as Foxy Bingo, Coral and Ladbrokes and has a geographically diverse revenue base. It has also been investing heavily in expanding into new markets, with recent acquisitions in the Baltics and Portugal.
However, while the NFL off-season may not impact Entain, analysts are concerned that the growth in online NGR could begin to slow, especially in the UK.
In a research note published following the FY21 results, Hargreaves Lansdown analysts wrote: “We expect that growth to slow from here on, as conditions get back to normal and punters can return to stores.” Still, some of the increased online demand may be permanent, said the report. This should help improve the company’s profitability, because the cost of running the service online is a fraction of physical points of presence. Besides, the return to brick-and-mortar betting would also benefit Entain shares, the report said.
US expansion is the key driver
Despite potential headwinds Entain could come up against in the short term, the company remains in a strong position, say analysts.
Morgan Stanley, for example, reaffirmed its ‘overweight’ rating for the stock following the FY21 results. In a note to clients, the firm described Entain’s unchanged outlook as “confident”.
Expansion in the US will undoubtedly be the key to Entain’s growth strategy. The UK could become a challenging environment for gambling companies to operate in. A government review of the current gambling laws is expected to get under way in May and gambling operators will be keeping a close eye on how UK laws may be overhauled.
As more US states legalise online sports betting and iGaming, BetMGM stands to go from strength to strength, potentially providing Entain with a huge windfall.
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