Five things we learned from Entain’s Q1 trading update

After returning an 11% year-on-year (YoY) rise in Q1 2023 net gaming revenue (NGR) on a constant currency (cc) basis, Entain saw its share price jump and the industry react positively to the giant’s continued impressive form.

A modest 1% (cc) pro forma increase in online NGR was abated by the continued success of its US JV BetMGM, while active customers increased by 19% as the drive to recreational play continues.

Long-term concerns around regulatory headwinds in the UK and Germany were apparent but did little to derail the Ladbrokes Coral parent company as it followed up a record Q4 with a strong start to 2023.

Speaking on an investor call following the results yesterday, CEO Jette Nygaard-Andersen and CFO Rob Wood lifted the lid on the group’s performance and their ambitions for 2023.

The duo championed the performance of BetMGM as it returned a 76% YoY rise in NGR for the quarter, while Nygaard-Andersen also dived into the importance of the recently acquired 365scores brand.

Elsewhere, India and Australia were put under the spotlight as two markets at opposite ends of their respective journeys, as Wood calmed concerns over the 1% uptick in online NGR in the first three months of the year.

American dream 

The strong performance from Entain’s US-facing JV, BetMGM, was one of the highlights of the group’s trading update, with the operator returning a 76% YoY rise in NGR to around $470m. Entain previously announced full-year 2023 NGR guidance of between $1.8bn and $2bn for the brand.

However, the strong start to the year, driven by the Super Bowl and college basketball’s March Madness, has a raised questions as to whether the NGR guidance is somewhat on the conservative side. Despite BetMGM set to become EBITDA positive for the first time in the second half of the year, and its dominant position in online gaming in the US, Nygaard-Andersen isn’t getting caught up.

She said the company would not be changing the guidance anytime soon and that she was pleased with the performance so far.

She further revealed BetMGM is growing same-state online sporting betting by around 100% and is maintaining its medium-term market share target of between 20% and 25%.

Nygaard-Ander added: “Our igaming is doing great with a market share of around 28% for the last three months to February. We’re super focused on our sports product [and] continuing to grow that, and I think the testament of growth in same-state NGR is really pleasing. But we continue to be laser-focused on the sports product. I really see that as an enormous opportunity for us.”

The CEO confirmed that in-play and same-game parlays continue to grow as a percentage of handle, and announced the company is planning to launch a single account wallet later in the year.

Shopping spree 

Entain agreed a $160m deal for live score app 365scores earlier this month as the firm continued to action its M&A pipeline. It was a leftfield move for the firm, with the shift away from snapping up leading local operator heroes in emerging markets, but the FTSE 100 company is set on diversifying the business beyond its traditional confines. The move for esports betting platform Unikrn fits into this strategy, and the acquisition of 365scores will further bolster the behemoth into new verticals.

Nygaard-Andersen was, understandably, full of praise for her latest purchase as she championed the platform’s potential scale and ability to leverage highly engaged sports fans into potential customers.

The CEO noted 365scores’ top five position globally in the live scores app sector, as well as holding a top three spot in Brazil, where Entain is eagerly awaiting regulation.

Nygaard-Andersen said: “Scores apps are a really important vertical when it comes to sports betting. It’s a highly engaged audience for your average sports fans, a highly scalable business.

“It’s very high convergence to real-money gaming. And then it’s an amazing data-driven business with a very impressive team, so that’s also something that’s important. It’s an amazing addition to the Entain platform in terms of focusing on building superior data capabilities.

“The strategic rationale here is, how do we continue to engage our customers, especially on the broader recreational side? How do we expand our offers to drive long-term value and lifetime value for the customer? But also, how do we include the cap and get on top of the funnel? And 365scores delivers on all these elements and also supports our global growth opportunities,” she added.

Nygaard-Andersen also explained that despite Entain’s continued M&A spree and the pressure of the macroeconomic environment, the group would continue to plough ahead with its strategy of cherry-picking assets where it sees fit.

The Dane said: “What does that mean for M&A? We take a flexible approach to our capital allocation. Every time we look at opportunities on how best to allocate capital and re-evaluate all the opportunities, so I don’t see the acquisition of 365scores to really impact that strategy.

“We’re still focused on both delivering on opportunities into new markets as they regulate, on organic opportunities, and then look[ing] at the best way of allocating capital going forward.”

Indian summer

Entain’s global approach has seen the company touchdown across the world with its presence, but one market that is glaringly absent from its portfolio is India. The country, which has a population of over 1.4 billion, including millions of cricket-crazed fans, is viewed as one of the next potential boom markets for the industry.

In fact, rival Flutter has already made its move for the sub-continent after it snapped up a 51% share in skill-based game platform Junglee Games in 2021 for around $66m, with a view to taking full ownership in the future. Junglee Games, driven by its rummy and DFS products, boasts 50 million users and is ticking along nicely for Entain’s FTSE foe.

So, why hasn’t Entain taken the dive into India? The company is tied to its own strategic position of only operating in regulated or soon-to-be regulated markets. Indian lawmakers are gearing up for a transition, but with such a socially and culturally diverse nation it may prove difficult. Nygaard-Andersen lifted the lid on the strategic oversight of the market and confirmed she is keeping a keen eye on developments.

Nygaard-Andersen said: “This is a market that we are monitoring really carefully. The Indian government has taken some steps now towards nationally regulatory framework. It’s been really state-led up until now.

“There are some steps towards national regulatory framework coming in place for online gaming, and they’ve assigned some ministers now to oversee some self-regulation and customer protection standards, but it’s very much focused on skill-based [games]. There are also some things happening for esports regulation.

“Right now, sports betting and igaming falls outside the scope of these initiatives, but it’s a market that we are super interested in for many reasons; population, they love their sports and cricket, and we have many people in the market that would love to see us launch there. So, we are laser-focused following regulation, but we haven’t taken any steps yet,” she explained.

Get Betr 

Heading Down Under, Nygaard-Andersen took the opportunity of Australia being mentioned to pass comment on one of Entain’s latest challengers in market in the shape of Betr. The much calcified and mature market won’t be grabbing headlines anytime soon, but the CEO praised “slight, positive growth” during Q1 which was driven by a focus on product and innovation. Nygaard-Andersen hit out at Betr’s marketing splash after entering the battle in October, which has since seen the brand hit with a record A$210,000 fine by the regulator.

The CEO said: “Australia’s a market that remains as competitive as ever, but we are really pleased with how the team is doing down there, and we continue to perform strongly.

“There is slight, positive growth there, and we expect that we are taking share. [It’s] still early days, but we do expect that we are outgrowing the market.

“Specifically, around competitors, there’s been some noise about the new competitor, Betr, that entered in the second half [of 2022]. Offerings there are very heavily promotion-led rather than focused on product and quality, and they have faded somewhat in terms of their promotional pressure there.”

The boss did concede that there was pressure on the Neds and Ladbrokes parent company from the old guard, including the likes of Tabcorp and Flutter’s Sportsbet.

She added: “But still, there is competition in that market and that will probably continue, but we’re really pleased with how the team is doing, and we are focusing on product, innovation and it’s really paying off.”

Happy New Year 

Although it was a positive quarter for Entain, there was a significant quarter-on-quarter slip in online NGR on a constant currency basis. Q4 2022, boosted by the winter World Cup in Qatar and a 14% rise in active customers during the period, closed out the year in a positive manner for the multi-brand operator. Online sports NGR moved up 7% (cc) while gaming jumped by 10% (cc) during the final three months of the year.

Comparing that to the start of 2023, online NGR returned a modest 1% (cc) YoY increase on a pro forma basis, despite another 14% (cc) increase in actives compared to the same period in 2022. CFO Rob Wood remained calm on the discrepancy, highlighting strong comparatives, as well as the success of Q4 as a standalone period for the firm.

Wood said: “We called out the World Cup was about a two-point contribution to Q4. We also called out SuperSport closing in November, was also about a 2% contribution. We also called out the strong margin in Q4.

“You might remember October 2021 was one of those shocker months for the industry, so Q4 2022 had some margin upside. So, you can bridge the gap across those three things,” he added.