What’s Behind the Rise of Flutter Entertainment Shares?
Posted by FFPundits
7:42am Mar 20 2021
Flutter Entertainment, one of the most valuable brands in gambling and the company behind Paddy Power and other profitable betting shops and sites, has seen a massive recent boost of shares. While it’s not uncommon for bookie shares to rise during the Cheltenham race week, this time the rise isn’t fuelled by the event.
Surprisingly, the rise happens because of another popular betting asset – FanDuel. While UK punters are not familiar with it, it is one of the biggest brands in the USA. FanDuel accounts for around 40% of the total market share in the USA, but unfortunately, the stock market value doesn’t reflect the strong position.
FanDuel to Split?
Flutter have grown to be one of the biggest gambling companies in the world in recent years, powering Paddy Power, Poker Stars, SkyBet, and FanDuel in the US. The latter has a dominant spot on the US online betting market, trading blows with DraftKings. Of them both, FanDuel is much more valuable, yet the stock market has failed to recognize the strong position.
Due to this, CNBC recently released a report saying that Flutter is considering hiving off FanDuel. Representatives of the company confirmed the unofficial report, although it’s still in the early stages. Investors have been pushing Flutter to spin FanDuel off, believing that it will be much better off on its own.
FanDuel’s revenue in 2020 was at $967 million. In comparison, its direct competitor DraftKings had a revenue of $644. FanDuel currently serves 10 US states, with more joining the fray soon. However, the company is tempted to hive off the popular brand seeing how DraftKings made a successful stock market debut in the US last year after a merger with the so-called SPAC (Special Purpose Acquisition Company). The shares started at $10 and rose to $71.75 fast.
Seeing those numbers, investors are pressing Flutter Entertainment management to doing the same with FanDuel. Since it holds 40% of the total US online betting market, FanDuel’s shares could end up higher than DraftKings.
The scale and scope of Flutter’s US business is fantastic. The company believes that it has the prime asset in the US online betting market and is happy with it. Spinning off FanDuel will not be so easy. However, if Flutter pulls the trigger on it, it could be very profitable.
In December 2020, Flutter paid a whopping $4.2 billion to raise the stake in FanDuel from 57.8% up to 95%. Back in May 2020, Flutter merged with the Stars Group, the biggest Canadian gambling company behind the Fox Bet brand. Fox is one of the largest shareholders in Flutter with a 2.6% stake. That ownership will be a problem for spinning off FanDuel. Flutter will need to iron it out before any demerger with FanDuel takes place.
It remains to be seen what happens in the coming weeks or months. It’s yet another reminder of Flutter’s strong position in the gambling market and that UK gaming companies rule it all.