In recent years, a flurry of legislative changes has ushered in a new market of online sports betting and gambling. Flutter Entertainment ( PDYP.Y -2.92% )( FLTR -0.99% ) is in pole position to take advantage of the expected growth from the opening of the U.S. online gambling market.
Headquartered in Dublin, Ireland, Flutter is a global sports betting and gaming operator with a diverse portfolio of international brands and operations. Flutter owns many well-known online gambling brands, including FanDuel, PokerStars, Betfair, Sky Bet, and many more.
The global online gambling industry is growing fast, and Flutter is one of the best ways to invest in this growth theme.
1. Global leader in online gambling
Gambling is one of the largest markets in the world and encompasses many formats, products, and customer segments. Some estimates indicate that the total market size of the global gambling industry is in excess of $400 billion and growing.
While most gambling still takes place in casinos, the penetration of online gambling has increased in recent years. 2020 has seen online gambling take considerable share from in-person gambling due to casinos being forced to close in the pandemic.
Flutter Entertainment has emerged as a global leader in the online gambling space. The company's online presence consists of many notable brands, including FanDuel and PokerStars in the U.S. In Europe, Flutter's brands, including Paddy Power and Sky Bet, are leaders in online casino and sports betting. It also owns Adjarabet, the leading gambling company in the country Georgia, and Sportsbet, the leading online sports betting brand in Australia. These are just a few of the company's many gambling brands that span the globe.
With a foothold already established in many key geographical territories, Flutter has a head start on its competition when it comes to capturing customers from changing gambling laws. The company will continue to benefit as the industry grows around the world.
2. Massive growth from online gambling in the United States
Gambling is only legal in a handful of states in the U.S. today, but the trend is clear: More states are moving to legalize sports betting and casinos because voters demand it and governments need the tax revenue.
The industry doesn't generate a ton of revenue from online gambling today, but some companies believe the overall U.S. opportunity could be greater than $40 billion in annual revenue in the next 10 years. Again, Flutter Entertainment is in a great position to capitalize on this growth opportunity.
Flutter owns the FanDuel and PokerStars brands, which are well-known in North America. FanDuel has over 8 million customers garnered over the years of providing online fantasy sports and daily fantasy sports. PokerStars is the marquee online poker brand but also has an online casino. Both of these brands already generate revenue. FanDuel produced over 100 million British pounds in sportsbook revenues in 2019, which was accomplished while active in only six U.S. states where sports betting was legal.
The U.S. market has huge potential due to the large population and enthusiasm for sports. The legal situation is also rapidly evolving. 18 states have already moved to legalize some form of sports gambling, and industry watchers believe that as many as 40 states could eventually legalize sports betting. This would create a huge windfall for Flutter Entertainment, which already has reputable brands in the space.
3. A cheaper stock than DraftKings
Flutter Entertainment isn't the only way to bet on the online gambling trend. Many investors are familiar with DraftKings, which has been a high-flying stock since its IPO earlier this year. However, those who have followed DraftKings stock may also know that it is expensively priced.
|Valuation Metrics||Flutter Entertainment||DraftKings|
|Enterprise value||$30.7 billion||$15.5 billion|
|Enterprise value to 2021E revenue||4.7x||20.2x|
|Enterprise value to 2021E EBITDA||19.7x||N/A (unprofitable)|
As the table shows, Flutter has twice the enterprise value of DraftKings but trades at lower multiples of expected revenue and earnings before interest, taxes, depreciation and amortization (EBITDA). Investors have priced DraftKings at a higher multiple because it is a pure-play bet on the U.S. online gambling market, while Flutter is more diversified with slower-growing business lines in Europe and Australia.
However, Flutter is already a profitable company, while DraftKings shows no signs of becoming profitable any time soon. Therefore, Flutter is likely a less-risky stock, but DraftKings may outperform if the U.S. market grows faster than expected.
A compelling growth story
Flutter Entertainment is a solid way to play the growth expected to come from online gambling, not just in the U.S. but globally.
The company already has a large international presence with a diversified portfolio of online gambling brands. It is already a profitable business, but is well-positioned to capture the expected growth from legislative changes in markets that are expected to open up. The cherry on top is that it is a cheaper stock relative to DraftKings -- the other 300-pound gorilla. The future looks promising for this compelling growth story.