Entain shares tumble after Q3 2023 earnings warning
Entain now anticipates high single-digit percentage growth in online NGR for Q3 2023, with a proforma decline also in the high single digits.
Several factors contributed to this performance, including adverse sporting results affecting sports margins in September, ongoing implementation of safer gambling measures across the group, regulatory challenges, as well as slower-than-expected growth in Australia and Italy.
Entain’s shares tumbled by over 8% during the early hours of trading.
Despite the challenges, Entain highlighted strong performance from recent acquisitions, notably SuperSport in Croatia.
The retail segment also demonstrated robust performance. In the US, BetMGM continues to perform well and is on track to deliver positive EBITDA in the second half of 2023.
Entain now expects group online NGR for FY2023 to rise by a low double-digit percentage, with proforma NGR decreasing by a low single-digit percentage.
The company reaffirmed its FY2023 EBITDA guidance range of £1bn to £1.05bn, supported by strong operational controls.
Entain CEO Jette Nygaard-Andersen commented: “We continue to see good underlying growth in our online business and are reiterating our EBITDA guidance for the year despite softer than expected revenue growth in Q3 and the ongoing roll-out of industry-leading safer gambling measures.
“We continue to attract more customers than ever before to enjoy our products and services. BetMGM remains on track to deliver positive EBITDA in H2 and a full year NGR performance at the top end of our expectations, and we are particularly excited about the product improvements that we are rolling out over the NFL season,” she added.
Over the past three years, Entain has undergone significant strategic transformation, focusing on improving earnings quality and aligning its operations for long-term shareholder value.
In July, iGaming NEXT reported that Entain was in the process of streamlining its commercial operations.
This involved a shift from a brand-focused approach to embracing a regional strategy, which may result in the elimination of certain senior positions and an increased probability of job cuts within the organisation.
Entain said it now plans to further accelerate performance and delivery by implementing several strategic actions, including a comprehensive market review with a focus on sustainable organic growth in the long term.
Moreover, the company aims to further simplify its group structures and operations to enhance operational leverage and reduce costs, while a plan is in place to migrate acquired businesses onto Entain’s industry-leading technology platform.Entain also plans to optimise its capital allocation priorities to maximise returns for shareholders.
On a positive note, the operator is making progress toward achieving its online EBITDA margin target of 30%.
Nygaard-Andersen expressed confidence in Entain’s growth prospects despite the challenges faced in Q3.
“Our focus now is on accelerating the actions we are taking to drive sustainable organic growth, expand our margins, capitalise on the US opportunity and deliver long-term returns for our shareholders,” she stated.
The company will provide further details on these strategic actions alongside its Q3 trading update on 2 November.
Edison Group director Neil Shah weighed in on the situation, stating that “Entain will be hoping it has an ace up its sleeve” in light of the unexpected dip in online gaming revenue.
However, he also pointed out that the company seems to be demonstrating ongoing resilience and adaptive strategies as it navigates the financial landscape of online gaming.
In H1 2023, the operator reported an 11% constant currency rise in overall NGR to £2.4bn.
Online revenue during this period saw a substantial 12% surge to £1.7bn.
This growth was propelled by a 19% rise in online gaming revenue to £918.3m and a modest 3% uptick in online sports betting revenue to £742.2m.
In parallel, retail revenue also experienced an 11% year-on-year increase to £709.3m.
Elsewhere, London-based investment brokerage Peel Hunt today reiterated its Buy rating for Entain stock but downgraded its target price from 1,700p to 1,300p.
“Entain remains a leading player in the US through its stake in BetMGM and it has the upside from multiple acquisitions that it has yet to extract fully,” wrote Peel Hunt analyst Ivor Jones.
“It promises a renewed focus on cost cutting/efficiency and optimised capital allocation with the 2 November trading update, and today’s statement was not even a profits warning.
“However, we acknowledge that confidence in a hitherto steady performer has been knocked, and we have reduced our target price to reflect this,” he added.