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Paddy Power Betfair trims outlook despite robust H1 bottom line

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Irish bookmaker Paddy Power Betfair (PPB) remained pessimistic about its full-year 2018 outlook even as its revenues accelerated at a faster pace in the second quarter of the year.

Paddy Power Betfair trims outlook despite robust H1 bottom lineIn a regulatory filing, PPB estimated that its full-year EBITDA will land between £460 million (US$591.43 million) and £480 million ($617.14 million) due to the introduction of additional taxes and losses from its growing U.S. business.

The latest figures were lower compared to the EBITDA estimates of between £470 million ($604.28 million) and £495 million ($636.43 million) that PPB issued in May. PPB cited several factors for the downward revision, including the introduction of new Australian taxes, the integration of FanDuel operations in the U.S., and lower horseracing revenues at its Betfair exchange.

“[T]he downgrade to [PPB’s] earnings guidance is a reminder of the regulatory risks the company faces in Australia and the UK, not to mention the execution challenges it faces in the US,” Senior Market Analyst Fiona Cincotta of UK-based brokerage City Index said in a statement.

Looking at the big picture, Cincotta noted that PPB actually had a great run in the first half of 2018 as strong second quarter bottom line offset the first quarter’s flat earnings.

PPB’s H1 2018 revenue rose 5 percent to £867 million ($1.11 billion) from £827 million ($1.06 billion) during the same period in 2017, thanks to the 2018 FIFA World Cup in Russia.

The company’s underlying EBITDA dropped 1 percent to £217 million ($279.31 million) in Q2 period against the £220 million ($283.18 million) in the same period last year. Profits before tax rose 4 percent to £106 million ($136.44 million) year-on-year.

PPB’s online segment posted a total revenue of £462 million ($594.67 million) for the first half of 2018, a 5 percent increase year-on-year. Sports revenue was also up 5 percent in H1 after sportsbook revenues offset declines in exchange and B2B revenue.

PPB was off to a slow start this year after its revenue for the first quarter fell by as much as two percent after an uncanny string of bookmaker-friendly football results. However, things started to turn around for PPB in the second quarter as punters came back to wager during World Cup matches.

The Irish bookmaker’s revenues jumped 13 percent in the three months ending June 30, 2018.

PPB’s sports revenue segment for the second quarter climbed 12 percent, boosted by the World Cup betting, which contributed some £23 million ($29.6 million) in revenues. Before the World Cup kicked off in June, the wagering firm noted that it was already tracking a 9 percent revenue growth for the quarter.

Meanwhile, PPB also reported robust business in the land down under during the first six months of the year. PPB’s Australian online betting brand Sportsbet saw revenue rise 5 percent to £182 million ($234.26 million) in H1 2018.

PPB recorded a gross profit of £131 million ($168.62 million) in the six months that ended June 30, 2018, up 3 percent from £127 million ($163.47 million) in the same period a year ago. Its underlying EBITDA for H1 2018 climbed 9 percent to £59 million ($79.94 million).

The bookmaker’s retail division, which boasts at least 629 betting shops across the UK and Ireland, posted total revenue of £162 million ($208.52 million) in the first half of 2018, up 1 percent. During the period, PPB reported that it opened three shops in the UK and two shops in Ireland.

The company said that its retail division’s EBITDA dropped 8 percent to £34 million ($43.76 million) due to the decline in its sports revenue.

In the U.S., PPB said its H1 net revenue rose 11 percent to £61 million ($78.52 million). In local currency terms, the revenue increase was 22 percent.

PPB’s U.S. gross profit also rose 10 percent to £47 million ($60.5 million) year-on-year while its underlying EBITDA jumped 26 percent to £9 million ($11.58 million). The data included revenues from its TVG horseracing TV and wagering network, the Betfair Casino and Betfair Exchange in New Jersey, and the early-stage daily fantasy operator DRAFT.

Although the numbers don’t include the newly acquired fantasy sports giant FanDuel, PPB said that the New York-based firm’s revenue increased 4 percent while generating “a small EBITDA loss in the period.”

“The combined U.S. business is expected to be loss making in the second half of the year due to the seasonality of daily fantasy business, which has high levels of marketing at the start of the NFL season in September and October, and the launch of the sports betting business,” PPB said in a statement.

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