Five things we learned from Entain’s Q1 2022 results

A disappointing 8% downturn in online net gaming revenue (NGR) year-on-year (YoY) in Q1 2022 for Entain was offset by a 1,000% jump in retail revenue to leave total NGR up 34% for the quarter. The FTSE 100 firm attributed the Q1 dip to “strong 2021 comparators”, suggesting the drop was in line with its expectations so far, having lost out revenue from Germany and the Netherlands YoY. The retail jump came after the relaxing of Covid-19 restrictions, although the firm anticipates further difficulties in drawing more return from the vertical moving forward. Speaking on an investor call, CEO Jette Nygaard-Andersen and CFO Rob Wood touched on a series of topics, including potential M&A deals, regulatory headwinds in Europe and the pressures of CPA in the challenging US market, as EGR explores. M&A maybe? “You should stay tuned,” said Nygaard-Andersen when questioned about Entain’s potential M&A as she confirmed the operator is constantly eyeing potential opportunities to strengthen its position in existing and new markets. The CEO revealed that the company would look at all sizes of deals and that price wouldn’t be a factor in stopping the firm from pursuing an acquisition if it elected to. She said: “We are working with a very strong M&A pipeline and looking both at bigger type deals, as well as roll-ups and bolt-on deals. There’s nothing at the moment that we believe we couldn’t pursue if we wanted to.” Nygaard-Andersen said that Entain took a mixed approach to any potential M&A deals and what it could offer to the particular operator. The first would be to enter new markets faster than it would be able to organically and take up a top-three position. The second would be to deepen the operator’s presence in existing core markets, with these M&As in the shape of smaller bolt-on deals. “We continue to have the price discipline that is always core to what we do. But, there is nothing that limits us in terms of pursuing targets at the moment,” she concluded. German earner Entain, much like other operators, has been faced with the prospect of regulatory headwinds in Germany leading to impact on revenue and EBITDA. However, there appears to be light at the end of the tunnel according to Wood, who revealed that licences are set to be awarded in H1 2022. Wood went on to hit out at non-compliant operators and suppliers in the market and welcomed the regulatory changes. He said: “It does feel that German gaming licences are getting close now. We had expected it to be the first half of this year that they would be issued, and I understand that that is hopefully coming fairly soon. “That’s one of the important catalysts to start creating an environment of enforcement against non-compliant operators and indeed, hopefully increasing pressure on suppliers to stop supplying non-compliant and unlicensed operators. So that’s a positive development,” he added. Retail return A headline 1,000% increase in retail-derived NGR in Q1 helped push total NGR up 34% YoY for Entain following the relaxation of lockdown measures almost two years since the start of the Covid-19 pandemic. An emphasis on developing the retail estate, including new technology, has been focused on to encourage customers back to shops, especially with online NGR dropping 8% YoY. Wood said: “We’ve been delighted to see our customers return in volumes to engage with a very different in-store experience versus online. This is particularly evident with strength in gaming machines and self-service betting terminals.” The CFO went on to note the UK and Italy led the retail revitalisation, although there were challenges ahead to continue to return greater revenue from the vertical. “Retail trading remains at around 5% to 10% of pre-Covid levels on a like-for-like basis led by the UK and Italy. The challenge is to find like-for-like growth from here as we continue to invest in the digitalisation of our estates and continue to drive significant value through our omnichannel expertise,” he added. USA! CPA! Looking to the US, Entain noted that its long-term goal of a CPA of $250 remained the focus for its BetMGM joint venture as Nygaard-Andersen welcomed operators’ relaxing on mammoth customer acquisition deals. Entain said BetMGM continued to go from “strength to strength” after establishing itself as the number two operator with a 24% market share. The London-listed operator also said it anticipates BetMGM to become EBITDA positive in 2023 based on current assumption of future live markets. Nygaard-Andersen said: “We [are seeing] more and more operators start to talk about building a sustainable business and targeting breaking even over the next years which, of course, we welcome and I think that’s a really positive development.” The CEO said that while the long-term target of a $250 CPA was her vision, the impact of venturing into new states, competition and the start of the new NFL season would mean this price would be higher. She added: “When it comes to the CPAs they continue to vary with seasonality and launches into new, bigger states and depending on how the competitive environment is there. “We do expect to see that CPA levels will still be higher and probably, as we go through the next cycle of the NFL season, we will continue to see the CPA level being elevated. Our focus and commitment [is] around $250 being an average blended CPA when we look forward.” Dutch dreaming Entain also touched on its hopes for returning to the Netherlands after having left the market ahead of its regulation on 1 October 2021. A return would lead to a welcome boon in revenue, although new advertising restrictions and the thought of playing catch-up to initial licensees could be a daunting task. Wood said he believed in the strength of the bwin brand and its previous success in the market but conceded there would be some difficulties when entering the market again. He said: “I think we’ll see a reasonable recovery in NGR as we progress through the second half of the year. But we do need to wait to see just exactly which operators are licensed in what order, what the timetable of licensing and launching looks like, before we can have a better view. So, we really need to wait to see.” Wood also noted that while NGR would recover well, a similar return in EBITDA would be a longer-term prospect for the firm. He continued: “We do benefit from a strong brand in bwin. That’s the key point. So, while you can’t use your previous customer database we, of course, start with one of the strongest brands in the Dutch market. So, [for NGR] that’s encouraging, EBITDA would take longer of course, because there’s a new tax and there’ll be marketing investments.”