Flutter's leadership is still worth a punt

Flutter has seen very choppy trading on the bourses for the last fifteen months. While early 2023 saw the stock rise steadily on the back of the company's good operational performance and progress on its US listing plans, the H2-23 saw pressure from firm-specific reasons (FOX brand shutdown, US market share loss in Q3) and a broader market weakness (weakest sports win margins in many years). However, evidence of a US market share recovery in Q4 23 provided the trigger for another upwards move, which was brought to a halt by US specific regulatory headwinds. Flutter, with its leadership position, was among the worst hit, losing approximately 6% in a single day in March 2024.
Net net, Flutter's stock price is up 16% since we last teased on the name in January 2023, handily outperforming a weak sector (+2%) and validating our positive stance back then. The all-important question is thus: is the stock still worth a punt? We think yes. Here’s why.

Consolidating leadership in the US

First and foremost, at 38%, the US is now the firm’s largest market. Leveraging its fantasy sports roots, Flutter has not looked back since the PASPA repeal. Today the firm controls nearly 53% (vs 50% in th Q4 23) of the US sports-betting market, leveraging its industry-leading product portfolio, increased scale and national advertising to generate the best-in-class win margins. Sports betting has been the firm’s stronghold ever since the US market regulation in 2018. Hence, it’s on the igaming (new names for on-line gaming …) front where the firm has truly impressed recently. Having promised to focus on this segment back in 2022, the firm now has a c.26% market share (vs 19% in mid-2022). In effect, Flutter sits on a twin pole position in the most attractive online gambling market currently ($15bn market growing at a 17.5% CAGR through to 2030).
However, as we saw in March 2024 (request for sports betting ban on NCAA events), potential regulatory risks do exist. Nevertheless, we believe the opportunity for multi-year growth far outweighs the potential one-off shocks, and, hence, Flutter is in an enviable position in the most important growth driver on the global gambling landscape.

The ‘big’ picture

The online gambling market, despite being around for nearly three decades, still accounts for only 30% of the c.$300bn gambling market and is expected to grow at a double-digit CAGR for the foreseeable future. In short, it’s a very attractive market. As we have stated many times in the past, a diversified revenue base, large scale and proprietary technology are the keys to success.
Flutter is the ‘largest and one of the most diversified’ online gambling operator with revenues 2.5x those of the next largest peer and operations spread in around 30 markets/countries. More importantly, Flutter operates among the best proprietary technology platforms in the industry, providing them with the agility to tackle the increasingly complex regulatory environment (differs by markets) while operating well-known local brands. The addition of lottery products means Flutter is one of the very few, if not only, gambling operators with a product mix of betting, igaming and lottery. In essence, Flutter is very well positioned to win in a promising market.
With grey market exposure now likely at 5-10%, Flutter is back to its pre-TSG levels on this front. Note that high regulated market exposure was a key reason for Flutter’s historical 25-30% valuation premium vs peers.