Sports betting is no longer taboo in many areas of the world. As more countries have loosened their long-time restrictions, gambling companies have rushed to take advantage of the lucrative new market.
In the US, a 2018 ruling opened up the floodgates for legalized betting across all 50 states. A recent article from PBS reported that American bettors spent over $220 billion on sports bets in the past 5 years alone, and that’s just in the 30 states that have legalized gambling so far.
Online betting companies like FanDuel and DraftKings have responded to the emerging market.
FanDuel is currently the most popular betting site in the US, but its reach extends internationally. The company is owned by UK-based Flutter Entertainment (LSE: PDYPY)
Certainly, the future appears to be bright for the sports betting industry, but Flutter stock has hit some headwinds.
From 2018 to 2021, PDYPY shot up by almost 200%. Thereafter, a hard 2022 that saw the stock give back much of its gains. This year, Flutter shares rallied once again before again performing a U-turn.
So why is Flutter stock falling?
What Is Going On with Flutter Entertainment?
Taking Flutter’s 2nd quarter of 2023 earnings report on its own merit, there’s no clear reason why the stock would take a downturn. In fact, there are a ton of positives for the company. The most important is that US operations, through FanDuel, have become profitable.
That’s a major win, as the company leveraged subscriber growth of 2 million players to report a $100 million profit in the quarter.
In the US, FanDuel is the #1 sports book, cornering around 47% of the market. Given the company’s popularity in America, Flutter Entertainment hopes to list on the NYSE by the end of the year.
There’s still plenty of room for growth at home, however, as the company reported 13% growth in its home country of Ireland and the UK combined. That growth was echoed abroad when Flutter Entertainment reported increased revenues of 8% internationally compared to the same quarter of last year.
The only negative on the earnings report was a stagnant top line in Australia, where sales fell by 1% in the quarter. Higher taxes were cited as the reason to blame.
Why Is Flutter Entertainment Stock Dropping?
That shortfall in Australia on its own shouldn’t be enough to send the stock price down, especially given such a positive quarter. After all, total revenue was up 42% year-over-year, and EBITDA soared 76% from last year.
It’s concerning that the company’s debt has increased from last year, especially given the high-interest-rate environment, but increased profitability and cash flows should largely offset those concerns.
So the question why is Flutter stock falling? Flutter stock fell because earnings came in shy of analysts estimates in the second quarter. In addition, Flutter didn’t increase its guidance for the rest of the year, forecasting that 2023 results to be in line with market expectations.
Will Flutter Entertainment Recover?
Despite its positive top line growth, a lack of buzz about the future results has hurt the stock in the short term. Still, there are many reasons to be bullish on Flutter. With the US base firmly established, there is still a massive opportunity for expansion.
Kentucky, North Carolina, and Vermont have all legalized sports betting and will officially launch operations in the coming year. And there are 7-8 states behind them in various stages of the process.
Given FanDuel’s current market share, it makes sense that the company’s US revenue (and profitability) will be on the rise.
But Flutter hasn’t staked it all on the United States. In 2022, the company purchased Sisal, an Italian gaming and lottery company, in a deal worth €1.91 billion. That came on the heels of a 2021 deal to buy Tombola, a UK-based bingo company, in a $543 million purchase.
And despite the decline in Australian revenue, Flutter still has an enormous presence down under. It operates through SportsBet in the country, which still holds around a 50% market share.
What Is The Future Prediction For Flutter Entertainment?
Because of the possiblity of dynamic growth in the industry, most analysts still rate Flutter highly. Out of 24 analysts who have weighed in on the stock, 18 rate it as a Buy.
The consensus estimate is that Flutter will rise to as high as $113.02 over the next year, suggesting a possible 37% increase is on the cards.
There isn’t a single Sell rating on the stock, with the remaining 6 analysts keeping a Hold designation on it. The most bearish forecast sees the stock dropping slightly to $81.33 over the next year.
What Is The Target Price For Flutter Entertainment?
Flutter Entertainment is an online gambling and sports betting company that owns multiple successful brands across the world, and most notably FanDuel in the US. The company increased revenues substantially in the 2nd quarter, and became profitable in the USA for the first time.
In spite of the good news, Flutter didn’t outperform analysts’ estimates nor did it increase guidance for the year. That led many investors to believe that the recent rally for the stock has run its course, and Flutter share price dropped as a result.
In spite of the falling share price, a healthy market for gambling still remains and for sports betting in particular. Indeed, that is only going to increase as more US states launch legal betting and more countries loosen regulations. With that said, analysts target price of $113 is well within the range of possibility over the next year.
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