New-look Betfair rams home advantages

Betfair’s Q3 results left analysts purring on Thursday and sent its share price soaring to an all-time high, and it’s not hard to see why.

The company, in the strategic wilderness just two years ago, is firmly back on track and its historic positioning as a tech-focused operator is paying dividends now that an online sportsbook and egaming product war has kicked off.

Double-digit growth in a number of key metrics including profits (17%), revenues (20%) and active customers in regulated markets (50%) left the market in little doubt that the firm is going about its business in an effective manner.

The firm said it was on track to record full-year EBITDA in the region of £113m and £118m, roughly 15% ahead of previous analyst projections and approximately 25% higher than FY14.

And the impressive performance comes on the back of an intensive two-year period of product and marketing investment as part of a strategy to differentiate itself from its peers.

Betfair’s branding might be almost unrecognisable from just a couple of years ago, but that focus on leading-edge technology and a large, highly-skilled development team has been at the heart of Betfair since its inception.

Leveraging stand-out products

“Our in-house development capability is allowing us to develop new products quickly and efficiently,” Breon Corcoran, Betfair CEO, said yesterday. “This is particularly evident in mobile, where our propriety technology gives us the largest and fastest growing channel,” he added.

Development in mobile has been a key focus and driver of growth. The firm attests to having a market leading handheld product suite, which in Q3 saw 80% of its UK and Ireland Sportsbook customers use a mobile device and mobile revenues grow by 96%.

Meanwhile last year’s launch of its Price Rush product, which sees sportsbook prices boosted if higher on the exchange, is one example of this, while its current ‘Tap Tap Boom’ marketing campaign aims to highlight the simplicity of placing bets via its popular mobile products.

Only this week Betfair launched each-way betting on the exchange while the firm said it has taken advantage of its status as an online-only company by starting to offer an increased number of early prices, setting it apart from competitors with high-street shops.

“Because digital businesses should be able to manage customer risk in a way that’s harder in the shops, we can afford to be more aggressive in offering more early price value to customers,” Corcoran said.

The real key to success, it seems, is pairing these innovations with an engaging marketing strategy. In the past year Betfair has worked on developing a more irreverent and individual brand concept through a number of alternative campaigns.

“You will have seen our octopus playing table tennis and by now hopefully you will have seen our rally car-driving horses,” Corcoran said.

“I think Betfair is beginning to have a clearer position as a differentiated offer in the market,” he added.

Gaming cross-sell challenges

The mobile channel also had a positive impact on Betfair’s gaming business, which during Q3 grew by 30% to £24.1m as an improved cross-sell strategy saw more than half of gaming customers use the mobile channel.

But despite recent growth, gaming still lags someway behind Betfair’s rivals at just 24% of total revenues, after stripping out the US. In comparison, William Hill’s gaming arm contributed 52% of total revenues in 2014 while Ladbrokes’ gaming products totalled 42%.

However, Corcoran said he was satisfied with how Betfair’s gaming division had been progressing although appeared to concede that the dynamics of the Betfair customer base meant gaming was unlikely to reach the levels achieved by some of its competitors.

“The exchange is an enormous part of the business here and the heritage exchange customer is less likely, as has been seen over many years, to consume gaming products,” Corcoran said.

“Our heritage is sport, what we know best is sport – we lead on product and we lead on price and promotions. If then those customers in turn consume gaming products and if we can make that journey easier for them or encourage them to try gaming products through better timed and better aimed promotions then that’s what we’ll try to do and we have seen some success from that,” he added.

Unfinished business

Betfair said its Q3 results showed it had built momentum and continued to gain market share – a statement backed up by a 35% growth in its active customer base to 760,000 – or a 50% increase when only taking into account its sustainable, or licensed, markets.

Yet Corcoran showed no signs of resting on his laurels and said that while active customer growth was pleasing, it was up to the firm to ensure it was getting the maximum share of customer wallet.

According to Corcoran, Betfair still has some way to go in this area but has been buoyed by the performance of its Price Rush and Cash Out products, which he said when used by customers for the first time resulted in a higher level of retention.

And despite a £7m Point of Consumption charge in Q3, investment levels show no sign of abating. Betfair revealed it had increased investment in people, product and marketing from Q3 into Q4 and expected marketing spending levels to remain constant and grow with the business.

“There is some evidence of deflation and have heard some competitors talk of that but there is still competiveness in terms of promotional activity so we would expect marketing to remain at similar kind of numbers as it is at the moment,” Corcoran said.

Away from the UK, the firm has arguably struggled to establish itself in overseas markets, and significant marketing spend in the likes of Italy, Spain, Denmark and the US will also be required if Betfair is to realise its international ambitions.

But as the share price surge indicates, Betfair looks like a formidable competitor and the only question is just how much sportsbook and gaming market share it can grab from its large rivals.