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It’s quarterly financial reporting time for public corporations within the gaming industry.
Paddy Power Betfair is the most recent to release its Q1 results, doing so in a conference call with investors this morning. The financials aren’t nearly as positive as they are for some of the competition.
With a few exceptions, PPB’s numbers were mostly down across the board, including a poor EBITDA line.
PPB’s year-over-year revenue was down two percent to £408 million this quarter. Executives were quick to point out, however, that it remained flat under constant currency rates.
Here are the reported revenue changes in the group’s verticals and markets:
Underlying EBITDA was down eight percent, marking the weakest quarter since the 2016 merger. Operating profits of £80 million represented a double-digit decrease from last year’s £91 million.
CEO Peter Jackson called the results “disappointing” while maintaining an optimistic forecast for the year. “Notwithstanding lower profits in the first quarter,” he said, “we expect full year underlying EBITDA of between £470m and £495m.”
PPB also announced plans to return £500 million to shareholders to help streamline its capital structure and strategy. The group held £330 million in cash at the end of the quarter.
Despite the red numbers, there doesn’t seem to be any real cause for concern.
PPB has only just finished integrating the two halves of its infrastructure, the Paddy Power side and the Betfair side. The two entities began a £5 billion merger a few years ago, and the process has tied up significant tech resources. Those resources will soon be reallocated to customer-facing products.
Jackson says that integration is partially to blame for the sluggish numbers, and better days are coming. “It’s clearly too soon for these initiatives to have an impact on the first quarter,” he said. “But we’re seeing early signs of success.” Customer feedback is increasingly favorable, according to Jackson, and cross-sell rates between sports and gaming are climbing.
Other stifling factors include a large foreign exchange calculation, the imposition of new betting taxes and significant start-up investments in the US market. Those investments are, of course, expected to generate a positive return in short order.
Horse betting was a problem, too. Four percent of all races were canceled during the quarter, up from zero in the previous period. That’s an unusually high rate, and it’s hard to overcome when horse racing comprises about half of all Betfair exchange traffic.
The issue was compounded by what Jackson called a “sustained period of bookmaker friendly sports results.” Books were winning big for several months, negatively affecting customer activity and bankroll recycling.
Excluding those losses, PPB says underlying EBITDA was flat for the quarter.
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The US market is the silver lining on PPB’s financial sheet right now.
Sports products saw a 24 percent increase in revenue, and gaming products grew by 19 percent. Betting handle through TVG increased 17 percent by itself, a primary driver for growth in the sports vertical.
It sounds like the group has larger US ambitions if things break favorably from a legislative standpoint. During the Q&A portion of the call, Jackson put a caveat on the projected EBITDA for the remainder of the year. “It’s also before any additional investment we may make in the US, should there be positive regulatory developments there,” he said.
He was primarily speaking about sports betting. The regulated US market is limited to Nevada at the moment, but that could be changing any day. The US Supreme Court is set to decide Murphy vs. NCAA before the summer, and the most-favorable result would facilitate widespread, state-based regulation.
Should that come to pass, PPB will certainly explore the new markets. Six states have already passed some sort of sports betting legislation, and more will follow suit if the court clears the way.
According to Jackson, though, it’s still too early to talk about a potential gameplan. “With regard to the US,” he said, “look, it’s very difficult to sit here today and talk confidently about the right technology solution for a market where we don’t even know if it’s going to open up.”
PPB and the rest of the industry should know whether or not the US is “going to open up” within a few weeks.