Entain CFO warns double-digit growth streak is over as Q4 trading begins

Entain’s 23 consecutive quarters of double-digit online growth are now over according to CFO and deputy CEO Rob Wood.

The FTSE 100 operator this week reported a 10% uptick in digital net gaming revenue for Q3 2021 to mark almost six straight years of digital gains.

That winning streak was originally expected to end prior to Q3, although third-quarter results came in ahead of expectations due to a favourable sports margin of 12.8%.

“Our volume growth in Q3 – so sports wagers and gaming revenue – was low single digits, so a touch ahead of expectations but essentially in line,” Wood told analysts on 12 October.

“Margin was well ahead so the upside was purely results driven rather than by anything structural, but it does compensate for temporary closure in the Netherlands which will now impact Q4.”

On a sporting results basis, Q3 started perfectly for Entain after England’s Euro 2020 penalty shootout final defeat to Italy at Wembley became a 30% margin match for the operator.

Domestic league action began with a particularly poor opening weekend before September football margins recovered thanks to consistently favourable results across the UK and Italy.

Entain is now into Q4, which stands to be an incredibly tough period comparatively after the operator reported 41% growth in the same period of last year – especially considering that £5m monthly EBITDA loss from the Netherlands and an even bleaker outlook in Germany.

Entain CFO Rob Wood

“We’re delighted to have delivered one last quarter of double-digit growth before we now inevitably hit pause on that run because we’ll be lapping the incredible growth that we posted last year,” said Wood, who expects fourth quarter sports margins to retreat to around 11%.

One analyst asked whether the Q4 sports margin could once again outperform expectations and lead to the possibility of an unlikely growth trajectory continuing into the fourth quarter.

Wood said: “Is there any possibility of growth in Q4? The answer is it would be very tough.

“Our guidance in the summer was around 10% down in Q4 and now we’ve lost the Netherlands, so that 10% becomes more like 13%.

“Remember it’s not just the lockdown benefit that drove the 41% growth that we saw in Q4 of last year – we also had a record margin of 13.6%, so it will be very tough on a year-on-year basis,” he added.

Despite a likely drop-off, the margin-driven upside in Q3 does mean that Entain’s full-year EBITDA guidance remains unchanged at between £850m and £900m.

Finally, Wood warned investors not to expect a sudden rebound of double-digit online growth in Q1 of next year after a one-quarter hiatus – again due to Covid-19 comparatives.

“The key point is that we will be annualising against lockdowns in Q1 in the prior year,” said the CFO.

“You’ve heard me talk previously about analysis that suggests that we keep something like a third of the upside that we get during a lockdown.

“But clearly that also means that two thirds do not stay with us because they go back to retail or other forms of discretionary spend.

“When you’re lapping lockdowns, to expect double-digit growth on top of that is just not going to happen,” he added.