Five talking points: Paddy Power results

Paddy Power yesterday announced online revenues had grown 42% year-on-year in the 20 weeks from 1 July to 16 November. Below we highlight some of the key talking points to come out of the Interim Management Statement including the boost the operator received from good sporting results and yet another strong mobile performance.

1. Results orientated thinking

Paddy’s latest financial result highlighted an apparent reliance on favourable sports betting results. In Q2 the Irish operator saw sports betting stakes increase 22% year-on-year, but saw a 20% fall in net sportsbook revenues due to “punter friendly” results in football and horseracing. In Q3, however, when sports betting stakes increased 18%, net revenues were up 60% in the sportsbook due to “bookie friendly” results.

One concern could be the impact on the business once results normalise and the inherent instability of its reliance on special offers and free bets in acquisition and retention marketing. But for now investors will be happy. “As a result of sportsbook performance, expect mid to high teens percentage growth in earnings per share for the full year,” Paddy Power CEO Patrick Kennedy, said yesterday.

2. Gaming on the up?

A revamped cross-sell model helped drive 20% growth in egaming during the quarter, compared with 14% growth in Q2. Although the impact of increased customer wins on the sportsbook and the consequential recycling of winnings into gaming shouldn’t be underestimated. And the operator said its continued investment in proprietary content and slots games, plus a more focused marketing strategy, had helped improved cross-sell between its sportsbook and casino gaming platforms and had driven growth.

Paddy’s head of online Peter O’Donovan told eGR that in-house developed content from its game studio was boosting cross-sell due to the “superior nature” of the products. He also highlighted improvements in the “modelling” of players Paddys cross-sells to. “Another area has been our sports side games, as we call them. We have integrated into our sportsbook mobile app a number of side games, which has been helping with the cross-sell rates as well,” O’Donovan added.

3. Thinking mobile first

Mobile continues to be a key driver of growth for Paddy Power. Mobile wagering was up 75% during the period, with mobile accounting for 58% of total online revenues. O’Donovan said the operator is sustaining its investment in mobile from a product and marketing perspective, and that he believes the majority “if not all” future growth will come through the channel. The recent addition of single sign-on function has significantly increased its cross-sell ability on the channel, while the firm has also launched a number of new mobile gaming products.

“We very much position ourselves to think mobile first when it comes to product so we will be there to capture the growth when it comes in those areas,” he said. “At the moment we are seeing the vast majority of our registrations, nearly two thirds, come through mobile. So it is also a key acquisition platform as well.” If Paddy Power can replicate its sportsbook mobile performance in gaming it could be a huge material uplift for the firm in 2015.

4. Forza Italia

Paddy Power said it was on track to break even in Italy after record month in October. Net revenue was up 72% having attracted record sportsbook turnover and egaming net revenue last month. O’Donovan said they had a “very strong” mobile offering in the country, and planned to bolster its egaming product suit with bingo by the end of the month, with virtual sports to follow.

“Our market share from H2 to date is around 12%,” O’Donovan said. “We were happy with our World Cup performance, but the good level of performance has been sustained into recent months as well. October was a record month from a sportsbook turnover perspective, and also from an egaming net revenue perspective.” Turning Italy from a loss-making business into a profitable one is a huge step for Paddys and its 12% market share in a very competitive market could be a springboard for good growth in the 12 months to come.

5. Australia powers on

Australia remains a real profit centre for Paddy Power, with its SportsBet brand once again impressing in the 20 weeks to November 16. Another “strong performance” at the Spring Carnival helped drive a 41% year-on-year increase in net revenues for SportsBet. Total stakes were up 21% and active customers up by 37% during the period and once more mobile is a major driver of this growth.

“The results [during this year’s Spring Carnival] were not quite as good as 2011 and 2012, but were materially better than 2013, so net revenue across the carnival was up 90%,” Kennedy said. “Online turnover on the Spring Carnival days was up 27% and customer acquisition numbers were up around that level too,” he added. Maintaining market share will not be simple in 2015, however, with both local and foreign operators continuing to spend big on both marketing and product and the likes of William Hill, bet365 and Ladbrokes keen to take it on.