Investors Gamble Flutter Entertainment Can Out Duel DraftKings

Flutter Entertainment (FLUT), the parent company behind sports betting and gambling platforms FanDuel, Paddy Power and others, is concentrating its focus on the U.S. as it looks to further challenge rival DraftKings (DKNG) for supremacy in a global market that is expected to total $370 billion by the beginning of the next decade.

Flutter’s U.S. FanDuel brand and DraftKings are by far the biggest players in the booming U.S. market for sports betting and online gambling. The two outfits combine for a share of around 70% of the U.S. market, according to company reports.

However, even as the pair dominate the U.S. sports betting landscape, the FanDuel parent believes there is more market to conquer in the U.S. and globally. Flutter, in September, estimated a regulated, total addressable market of $368 billion by 2030 for global gross gaming revenue, with a compound annual growth rate of 14%.

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As a top sports betting and iGaming operator, Flutter Entertainment’s properties reach beyond just FanDuel. Other Flutter-owned brands include Sky Betting & Gaming, Sportsbet, PokerStars, Paddy Power, Sisal and more.

But the Dublin-based sports betting giant has also recently decided to shift its operational headquarters to New York as it continues to focus on the U.S., which is Flutter’s biggest market by revenue. The headquarters switch to the U.S. follows its primary listing move to the New York Stock Exchange earlier this year.

“We believe this large addressable market has a long runway of growth ahead,” Flutter Chief Executive Peter Jackson said on Sept. 25 during the company’s investor day.

“This means that a significant opportunity still remains for us,” Jackson added.

Analysts appear convinced the company is well positioned to capitalize on the growing sports betting market with expectations Flutter earnings will soar 400% by 2028.

Flutter did not respond to request for comment.

Betting Demand At ‘All-Time High’

Industry prospects look strong with around 20% of U.S. adults saying they bet money on sports in some way in the last 12 months, according to a 2022 Pew Research Center survey. The American Gaming Association (AGA) also reports the U.S. commercial betting industry saw record revenue of $66.5 billion in 2023, growing 10% compared to 2022’s record and representing the third consecutive record revenue year.

AGA data shows 2023 revenue from sports betting came in at $10.92 billion and iGaming totaled $6.17 billion. Sports betting revenue grew 44.5% vs. 2022 while iGaming increased 23%.

“From the traditional casino experience to online options, American adults’ demand for gaming is at an all-time high,” AGA President and Chief Executive Bill Miller said in a statement earlier this year.

Through the second quarter of 2024, the U.S. commercial gaming sector notched its 14th consecutive quarter of annual revenue growth, according to AGA data tracking.

Flutter Sees User Growth

Meanwhile, Flutter already claims to be the industry leader by size with 12.3 million average monthly players in 2023, representing a significant increase from 10.2 million in 2022. In this year’s second quarter, the FanDuel parent reported that average monthly players increased 17% to 14.3 million. In the first quarter, Flutter reported 13.7 million average monthly players.

Average monthly U.S. players leaped 30% in the second quarter. U.S. revenue surged 39%, driven by a 41% increase in sportsbook revenue. Meanwhile, the company reported more new players in established states. Flutter saw 16% growth in new-player volumes in states where it launched prior to 2022.

The sports betting giant expects this upward trajectory to continue. Flutter, in late September at its investor day, provided medium-term 2027 guidance and a new $5 billion share repurchase program.

Along with the $368 billion total regulated addressable market by 2030, the company projects the midpoint of its U.S. and rest of world 2027 revenue at $21 billion in revenue, representing a three-year annual growth rate of 14%. Flutter is also targeting 2027 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of more than $5 billion, while its adjusted EBITDA margin grows to 25%.

FanDuel: Eyeing U.S. Sports Betting Growth

With built-in demand for Flutter’s products, the company expects the North American total addressable market in 2027 to be approximately $70 billion, with the U.S. representing a bulk of that market at $63 billion. The market for the U.S. was about $40 billion in 2022, according to the company.

Flutter said it has “significant” opportunities to expand further from states that have yet to regulate its betting products. The FanDuel parent also maintained its expectations for 80% sportsbook population coverage and 25% iGaming population coverage for the U.S.

Flutter also projects the midpoint of 2027 revenue from existing states, where sports betting and iGaming products are currently legal, to be about $9.7 billion. The company also forecasts a long-term net gaming revenue margin of 12% for FanDuel.

Flutter touts its diversified geographic and gaming product portfolio as well as its leading technological position as keys to its growth potential.

Barclays analyst Brandt Montour left the investor meeting writing that Flutter is looking to “protect as well as expand its moat in the U.S.”

“Since 2018, FanDuel has created a product gap with its U.S. competitors,” Montour wrote in a report. He added that Flutter “has built a flywheel” of products “leading to a higher revenue share and better generosity, that’s then reinvested back into a further improved product.”

Flutter’s Profit Outlook

The company reports third-quarter earnings and revenue on Nov. 12 after the market closes. Analysts predict a quarterly loss of 34 cents per share with sales increasing 22% to $3.05 billion.

Morgan Stanley analyst Stephen Grambling, on Oct. 22, wrote that looking at the gaming space in the third quarter, “brick & mortar trends were sluggish but digital has been robust.”

“We expect to see a wide spread in performance,” Grambling said, adding that the firm sees upside for digital-exposed names, including Flutter and DraftKings.

However, Flutter’s projected third-quarter loss looks to be a short-term blip as analyst consensus has quarterly earnings hitting $2.84 per share in the fourth quarter, part of expectations the company will turn a profit in the next five consecutive quarters.

Meanwhile, analysts forecast full-year earnings will soar 405% compared to 2023 levels to $17.73 by 2028.

In August, the FanDuel parent reported a 56% increase in adjusted earnings to $2.61 per share, well ahead of FactSet estimates of $1.47 per share. Total revenue jumped 20% to $3.61 billion, also ahead of views of $3.39 billion.

FanDuel Bet: Flutter Stock Performance

Flutter shares hit an all-time high of 252.84 on Sept. 25 but have retreated to their 50-day moving average since then. Flutter Entertainment stock broke out above the 226.40 buy point for the 27-week base on Sept. 17, according to MarketSurge chart analysis. Shares of the FanDuel parent are up 26% in 2024. On May 31, Flutter Entertainment moved its primary listing to the NYSE.

Flutter Entertainment stock ranks fifth in IBD’s Leisure-Gaming/Equip industry group. The 30 stocks that make up the group have collectively added around 5% in 2024. FLUT holds a 73 Composite Rating out of a best-possible 99, from IBD. The FanDuel parent also has an 83 Relative Strength Rating and a 36 EPS Rating.

Meanwhile, DraftKings sits 14th in the group and has advanced just 3.5% this year. The FanDuel rival declined more than 6% in August, hitting a recent low of 28.69. Since then, shares have rallied 27%. DraftKings, in August, nixed plans to impose a gaming tax surcharge for winners in high-tax states with multiple mobile sports betting operators.

The announcement came after other sports betting outfits declined to join in imposing surcharges for winners. Jackson, Flutter’s CEO, at the time said the best option for customers is “moderating levels of generosity and reducing global marketing,” rather than charging winnings.

ESPN BET and BetRivers also said they had no plans to impose a surcharge tax on winnings.

DraftKings reports third-quarter earnings on Nov. 7 with analysts expecting a loss of 42 cents per share and $1.11 billion in revenue. In August, DraftKings announced a $1 billion stock buyback plan and hiked its full-year revenue guidance to $5.05 billion to $5.25 billion, from its prior outlook of $4.8 billion to $5 billion.

Flutter Entertainment Stock Declines On U.K. Tax Fears

After news emerged that the United Kingdom is considering increasing taxes on online gaming, Flutter Entertainment stock declined nearly 9% on Oct. 11.

However, despite the potentially negative news, the stock received a flutter of price-target hikes on Oct. 14. Bank of America analyst Adrien de Saint Hilaire reinstated coverage of FLUT with a buy and a 300 price target, representing about 30% upside. The analyst wrote that the upside potential implied by its price target is premised on FanDuel’s “unique positioning and vigorous market backdrop.”

Meanwhile, Benchmark analysts wrote on Oct. 14 their view was the 9% drop offered “an ideal opportunity to capitalize on the pullback” given their expectations for “a far less severe outcome” in the U.K. than feared.

The firm has a buy rating on the FanDuel parent with a 265 price target, representing a further 17% upside to current trading levels.

Benchmark analysts added that after meeting with Flutter executives they were “very impressed with the U.S. and broader North American secular expansion opportunities” and felt confident that the company will “continue to lead in product innovation for years to come.”

Please follow Kit Norton on X @KitNorton for more coverage.

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