Entain reports 10% rise in online NGR for Q3 as BetMGM brand soars

Entain has reported a 10% uptick in digital net gaming revenue (NGR) on a constant currency basis for Q3 2021 to mark 23 consecutive quarters of double-digit online growth.

However, Entain CFO Rob Wood is adamant the impressive run will finally come to an end in Q4 after another strong sports margin for the quarter (+1.3%) proved a major driver of Q3 growth.

Next quarter, the FTSE 100 operator is also preparing to come to terms with a tough comparative period after a particularly high period of growth last year and the loss of revenue from the newly regulated Netherlands.

Wood’s words of warning have been heard and heeded by investors. For example, Regulus Partners analyst Paul Leyland believes Q4 of this year could provide the first evidence of the post-pandemic “new normal” trading environment.

He said: “Given that Q4 faces tougher margin comps, a fuller sports calendar in the comps (spilling into Q121), and a large number of customers likely getting out again to spend money in the real world, we anticipate something of a Q4 correction, especially if the loss of government support and increasing inflation starts to put pressure on overall pre-Christmas consumer spending.

“Entain is well placed to manage this potential macro pressure operationally and from a market share perspective, but it might provide something of a corrective to what the ‘new normal’ might look like versus the last nine months of trading,” he added.

Sticking with Q3, all of Entain’s major markets delivered strong performance, particularly in Australia and Brazil.

Germany provided the main drag on Q3 revenue as proven by the fact that overall online revenue would have increased by 18% excluding the difficult-to-navigate European market.

Retail NGR rose by 1% on a constant currency basis with UK volumes recovering towards pre-Covid-19 levels and activity “steadily rebuilding” in Europe.

Entain was eager to highlight the performance of its BetMGM joint venture in the US during the reporting period. It now considers the brand the clear igaming market leader in the US with a 32% market share.

That number drops to 23% for both sports betting and igaming for the three months to August, although Entain said its August data showed that BetMGM was seriously challenging FanDuel for the number one position in the States during that month.

BetMGM is now live in 16 states after Q3 launches in Arizona, Wyoming and South Dakota.

Entain expects full-year 2021 EBITDA to be in line with previous guidance at £850m to £900m after strong Q3 trading performance helped to offset an estimated £5m monthly loss from the Netherlands.

Entain CEO Jette Nygaard-Andersen said: “These results demonstrate Entain’s continuing ability to deliver sustainable, consistent and diversified growth.

“As we announced on 12 August, our total addressable market (TAM) is expected to more than triple to over $160bn.

“This will be driven by the significant opportunity in the US, where we are now challenging for the number one market position, our growth plans in other new and existing markets and our strategy of entering into new areas of interactive entertainment.

“By offering customers ever more engaging products while leveraging our scale and technology, we will drive the flywheel effects of secular growth dynamics that can triple the size of our business.

“As a result, we remain very confident in Entain’s future prospects,” she added.

Entain is currently a takeover target for US rival DraftKings, which tabled a $22.4bn (£16.4bn) offer for the company in September. Under the UK’s City Code on Takeovers and Mergers, DraftKings now has until 19 October to decide whether to make a concrete bid for shareholders to consider or to pull out of the process.

If a takeover does proceed, Entain’s US JV partner, MGM Resorts, could end up in sole control of BetMGM. Peel Hunt analyst Ivor Jones believes it might be time for Entain to investigate a sell-off.

He said: “What doesn’t show up in the EBITDA is the remarkably strong performance in the US, where the BetMGM JV is making a credible push for overall sports betting and igaming market leadership.

“This could be the perfect time for Entain to sell out of the BetMGM JV, if MGM can be pushed to overpay.

“However, that is just a possibility and it doesn’t seem like a knockout offer from DraftKings is on the table at the moment,” he added.