Analysis: Paddy Power growth a sign of things to come
Operator eyes long-term Italian and Australian growth as investment in mobile continues to pay off
Today’s Paddy Power results yet again revealed impressive online growth for the Irish operator, but while an overall online net revenue hike of 29% year-on-year will make the headlines, other figures more accurately show signs of what the future might bring.
Gavin Kelleher, an analyst with Goodbody, said the “key positive” remains the underlying growth in Paddy Power’s online businesses, particularly the continued mobile performance. “It is these trends that underpin our positive investment view on the stock,” he explained.
Aside from its dominant online sportsbook product, in which strong momentum from 2012 saw revenues increase 36% year-on-year with stakes up 19%, the operator also saw its gaming revenues rise more than a fifth in the period. And its customers are now gambling on the move with 26% of gaming net revenues coming from mobile “ a significant jump from 9% last year.
This has no doubt been boosted by investment in several new mobile offerings including Roller casino and Paddy Power Vegas, both created specifically for iOS devices. That’s not to mention a series of eight new games developed by Bulgarian developer Cayetano “ which it acquired in 2011 “ within the past three months.
Meanwhile, small but steady increases in the rapidly evolving Italian market look to hold decent potential for Paddy Power in years to come. Its Italian business remains loss-making after it invested 20.5m to launch in the country, but it can now boast a 6% sports betting market share there with amounts staked increasing 29% in the period from 1 January to 12 May 2013.
On the gaming side it continues to invest in casino and mobile. The operator expects to launch its mobile casino product to the Italian market this week, with a flash live casino and mobile bingo in the pipeline for later this year.
But while growth from non-core markets Italy and Australia “ where sportsbook is driving growth for Sportsbet, the company acquired in early 2011 “ the extremely competitive nature of these jurisdictions means growth is likely to be slower than many hoped.
Analysts agree the competition and size of the Italian market will make it a “hard slog” for Paddy Power. Nick Batram, an analyst with Peel Hunt, said: “It is attracting decent market share but having to spend a lot of money to do so. It’s tougher than the market is making out.”
In this morning’s results call CEO Patrick Kennedy (pictured) argued that Paddy Power had “cut its cloth and grown up” in the most competitive gambling market, the UK, and was therefore more than capable of winning the race for market share in new markets.
“[In Australia] Tom Waterhouse and Bet 365 are spending a lot on marketing so it is very competitive,” he said. “But we say competition is good, it keeps us on our toes. I think we will remain competitive with maybe some increase in [investment] coming in the next 12-18 months.”
Kennedy also pointed at future acquisitions, saying the operator’s development team “has never been busier” however he refused to speculate on the sort of investment the company would make. “We believe opportunities will come our way,” he said.