Paddy Power Betfair: Betting on advertising

Paddy Power Betfair: Betting on advertising

Henry Croft, Research Analyst at Accendo Markets, commented this morning:

Just days after the departure of their CFO, Paddy Power Betfair shares are sharply lower this morning as FY results, and more importantly guidance, disappoint shareholders. The betting chain noted that while both revenues and EBITDA grew by 13% and 18%, respectively, above expectations, a string of unfavourable sporting results for punters dented customer activity and resulted in slower growth in comparison with a year earlier. Furthermore, proposed regulatory changes in both the UK and Australia threaten to see this growth fillip continue, which the group has pledged to overcome by an almost 7% increase to its vast £300m advertising budget.

A quick trawl of Paddy Power’s Twitter account suggests that what customers would rather see is free bets to get them ticking over. However, in Australia – one of the best performing divisions for the group (revenues +29%) – ‘credit betting’ is set to be outlawed in the next three months. While peer William Hill has already exited the market down under in anticipation of the law change, Paddy Power Betfair is sticking to its guns and hoping an increased advertising drive can compensate. And with a jampacked Summer of sporting events to get customers going, perhaps targeting a wider audience that saves money for top tier tournaments is a wiser strategy.

With that said, shareholders don’t appear too hopeful about prospects, seeing shares fall the best part of 7% at this morning’s lows. This either reflects that the advertising push won’t be enough to stymie slowing growth, or that it won’t be able plug the impact of aforementioned Australian law changes and a potential £150m black hole from a cap on UK fixed-odd betting terminals.

Furthermore, with bookie-friendly results already seeing punters shy away from betting, typical strategies such as placing attractive pay out offers on more predictable outcomes of this year’s major sporting events (including Cheltenham races, Grand National, Champions League final, FA Cup final, FIFA World Cup, Ryder Cup) may attract further business, however could still work against gambling houses; when the punters win, bookies lose, and when the bookies win, punters lose interest.

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