Entain’s Q3 Performance: Falling Short of Revenue Expectations

Safer gaming regulations, slower development in important areas, and sporting outcomes hampered Entain’s performance in the third quarter, but the company is still on track to meet its EBITDA target.

Online net gaming revenue (NGR) has been inconsistent across the group in the past few weeks, according to a financial report from Entain. Even though Entain still anticipates growth in Q3, it adds that overall, this will be less robust than projected.

Online NGR growth for Q3 is anticipated to increase by a high single-digit percentage. Entain, however, also predicts that, on a pro forma basis, it will probably fall by a high single-digit percentage.

Entain cites several factors for this, including negative sports outcomes that had an impact on sports margins in September and slower growth than anticipated in Australia and Italy. Additionally, it mentioned how responsible gambling policies have affected the group and how regulatory challenges have persisted longer than anticipated, notably in the United Kingdom.

Entain, still identifies growth-promoting factors for its internet company. These consist of BetMGM’s continued success in the US, an excellent pro forma increase in active customers, and firm retail performance.

Entain claims that it is also gaining from the effects of recent acquisitions. One of them is Entain’s acquisition of SuperSport in Croatia by the end of 2022. Additionally, its purchase of Polish sportsbook operator STS Holding was significant.

Entain claims that while slower online growth will most probably have an impact on full-year revenue performance, this is not the case for EBITDA. EBITDA is expected to be in the range of £1.00bn (€1.15bn/$1.22bn) and £1.05bn for 2023.

The CEO of Entain, Jette Nygaard-Andersen, stated, “We continue to see good underlying growth in our online business and are reiterating our EBITDA guidance for the year despite softer than anticipated revenue growth in Q3 and the ongoing roll-out of industry-leading safer gambling measures.”

“We keep drawing in more customers than ever before to take advantage of our products and services. BetMGM is still on track to meet our expectations for a full-year NGR performance and to deliver positive EBITDA in the second-half of the year. The product upgrades we will be introducing throughout the NFL season have us especially excited.”

Entain optimistic about long-term growth target

Entain also mentioned a “significant strategic transformation” that the company has undertaken over the last three years in the same update. This, it adds, is intended to boost earnings quality and align operations to produce long-term shareholder value.

During a longer trading post on November 2nd, Entain will share further insight on this method. Details regarding a full market review focusing on long-term, sustainable organic growth will be discussed.

The organization will also streamline its structures and activities. The November trading report will describe objectives for integrating acquired businesses, optimizing capital allocation priorities, and progress toward the company’s goal of achieving a 30% online EBITDA margin.

“We have implemented substantial changes to the group over the past three years,” stated Nygaard-Andersen. “Our focus is now on accelerating the actions we’re taking to drive sustainable organic growth, expand margins, capitalize on the US opportunity, and generate long-term rewards for our shareholders.”

“We remain confident in our ability to capitalize on the numerous opportunities that lie ahead of us.” We look forward to providing additional information about the improvements we are implementing with our Q3 trading report in November.”

H1 record sinks

The update follows Entain’s record-breaking first half. NGR increased 14% year on year to £2.40 billion, aided by a record number of active online gamers in Q2.

Online revenue was £1.68 billion in H1, up 145% from $1.47 billion in the same period last year. Entain stated that solid underlying businesses and NGR from acquisitions outweighed ongoing regulatory challenges. This was mostly in the United Kingdom and Germany. It also emphasized the effectiveness of its concentration on recreational customers.

Retail revenue increased 11% year on year to £709.3 million. Entain cited the elimination of Covid limitations as one of the main drivers of this increase. The last measures were eliminated in the first half of 2022.

BetMGM earned $944.0 million in the United States, a 65% increase over the previous year. Entain further stated that this sector is on track to generate between $1.80 billion and $2 billion in revenue for the whole year.

Entain makes a £585 million provision as a result of the HMRC Turkey inquiry

Along with the H1 results, Entain disclosed a £585 million provision for deferred prosecution agreement (DPA) negotiations with the Crown Prosecution Service (CPS). This has to do with its historical involvement in Turkey.

After accepting a deferred prosecution agreement (DPA) with the CPS in May, the operator warned it faces a “substantial” penalty from the case.

Entain stated that the DPA negotiations had progressed to the point where a resolution to the HMRC probe was possible. It is confident enough to estimate the £585 million settlement figure that the operator intends to pay over the next four years.

Any agreement is subject to judicial approval. Entain predicts that HMRC will demand this in Q4 2023.