The Flutter Entertainment (LSE:FLTR) share price is down almost 10% this week after the gaming company released its latest earnings report. This isn’t the first time in 2021 that the stock has seen sharp volatility. And looking at its 12-month performance, returns currently stand at around -8%. So what was in the report that upset investors so much? And is this actually an opportunity to snap up some shares at a discount for my portfolio? Let’s take a closer look.
The Flutter share price versus earnings
As a reminder, Flutter Entertainment provides a range of betting platforms. Its portfolio includes several well-known brands such as Paddy Power and Betfair. What started out as a small British business in 1948 has since expanded into a global enterprise with operations spanning from the US to Australia.
Despite the recent downward direction of the Flutter share price, this latest earnings report showed some encouraging signs. Firstly, revenue for the period on a constant currency basis increased 12% compared to a year ago, reaching £1.44bn over the last three months. This was primarily driven by a similar boost in average monthly players rising from 6.4 million to 7.3 million.
Looking at the geographic breakdown, most of this growth originated from the US. In 2018, the US Supreme Court lifted its ban on sports betting. And Flutter seems to have successfully capitalised on the opportunity. As of the end of September, the company boasts a 42% market share of online sports betting in the US, with an 18% market share of the online gambling space in general.
This is quite exciting, in my opinion, so why is the Flutter share price falling?
Trouble brewing in Europe
Despite the rapid growth and profits coming out of America, investors seem to be concerned about what’s happening in the Netherlands. Earlier this year, the Netherlands Gambling Authority changed some of the licensing rules that forced management to temporarily cease all operations within the country. Consequently, the company expects underlying earnings for the entire year will be adversely affected by £10m.
Flutter intends to re-enter the market by Q3 2022 and expects operations to return to profitability by mid-2023. However, its absence is estimated to translate into £40m of lost profits next year. And that doesn’t include the damage of losing market share to local competitors.
This is undoubtedly frustrating, and I can see why some investors are deciding to pull out, resulting in Flutter’s share price falling.
A good time to buy?
The recent sell-off does seem to be triggered by what’s effectively a short-term problem. And with US operations storming ahead, the impact of lost profits from the Netherlands next year could be mitigated. Having said that, I’m personally not interested in adding the shares to my portfolio, because I think there are far better growth opportunities to be found elsewhere.