FanDuel parent company Flutter Entertainment posted Q4 results Tuesday, with the US business a bright spot in an otherwise tricky period.
Flutter stock slumped 10% after the print to 9,680p because of slowing growth in the European business.
However, FanDuel continued to dominate the US market, with a 31% share of online betting and gaming.
1) Big growth, big costs
Revenue from FanDuel Sportsbook and Fox Bet for the year grew 113% to $1.9 billion.
That was nearly 50% more than the nearest competitor, Flutter said.
The US business posted an EBITDA loss of $326 million in 2021. Flutter expects similar losses in 2022 before it turns EBITDA-positive in 2023.
2) FanDuel keeping pedal to the metal
Rivals like Caesars might be pulling back from the market, but FanDuel said it is leaning in.
“It was the most aggressive start to NFL season we’ve ever seen,” CEO Peter Jackson said. “People were buying handle share but we remained disciplined.
“Now competitors are pulling back spend but we are leaning in. We see really attractive investment opportunities in CAC to LTVs [customer acquisition costs to lifetime values.]”
Driving those favorable economics is product. As Jackson put it, “Our customers are voting with their feet. They may take other competitors’ free money but they come back to the FanDuel app.”
Consider this chart from New York sports betting:
3) Product is king
FanDuel recently topped all US sportsbooks in Eilers & Krejick app testing.
“We have to be paranoid,” said CFO Jonathan Hill. “That’s why we keep investing in product.”
In that vein, Flutter spent much of the quarter working on improvements to its same-game parlay (SGP) product. That included more SGP in-play markets and launching SGP for new sports like college football.
The operator also continued to invest in its own odds origination, meaning 80% of college basketball is now priced in-house.
“The combination of better pricing accuracy and a greater proportion of handle coming from higher margin parlay products means we generated 340 basis points more in gross margin than our competitors during Q4,” the company said.
In other words, if FanDuel took $1 million in handle, it might expect to make $80,000 in revenue versus a rival’s $46,000.
4) Flutter still weighing US FanDuel stock listing
Flutter has been talking about listing a “small percentage” of the FanDuel business for nearly a year. The company is still evaluating that option for several reasons, Jackson said.
For one, a listing brings free marketing for the business.
“DraftKings got a lot of publicity around that with customers buying stakes in the business,” Jackson said.
FanDuel could also use public equity to pay for marketing partnerships and compensate staff. But given the current state of the market, do not expect a move any time soon.
“It is not something we need to do,” Jackson said. “Clearly we are monitoring the markets at the moment and it is something the board will keep under evaluation.”
5) Fox in the henhouse
Of course, the IPO route is still blocked somewhat by Fox. Jackson said the two companies are headed for arbitration in June, having spent recent months trying to work out a deal.
Fox has long argued it has an option to buy a chunk of FanDuel at a below-market rate.
“We know the value of the FanDuel business and any deal with Fox has to recognize that,” Hill said. “ If we can’t agree on that, we are very comfortable going to arbitration.”
