Analysts question Flutter’s “over-reliance” on US growth

Flutter Entertainment’s 2024 Earnings: A Deep Dive into Challenges and Opportunities

Flutter Entertainment has revealed its 2024 earnings this week (March 5), attracting attention from analysts who caution against an over-reliance on growth in the U.S. market. This strategic focus on the U.S. could pose significant risks for the group’s overall sustainability in the long term.

During the earnings presentation, Flutter’s management predominantly emphasized its U.S. sports betting and iCasino verticals, highlighting a remarkable 19% revenue growth for 2024. This surge is largely attributed to the increasing popularity of sports betting in the U.S., which now constitutes 41% of the company’s overall revenue.

Despite the U.S. market’s robust performance, Flutter also reported positive double-digit revenue growth across its UK, Italy, and Rest of the World (RoW) segments. Nonetheless, the pronounced focus on the U.S. has raised alarms among financial analysts, pointing to potential vulnerabilities in the company’s long-range growth strategy.

Concerns Over U.S. Market Dependence

Ed Birkin, Managing Director at H2, remarked on the sustainability of Flutter’s growth model, cautioning that increased reliance on organic growth from the U.S. market may not be tenable in the long run. He stated, “Organic growth will need to be supplemented by strategic investments of their healthy free cash flow, especially in strategic mergers and acquisitions, as these could yield better returns compared to share buybacks.”

Regulus Partners echoed this sentiment in their analysis, expressing concern about Flutter’s strategy as it leans heavily on the U.S. as its primary growth engine. The report warned that focusing solely on combating black-market activities could lead to a heavily regulated and inefficient operational model. “This could result in a fragmented market, allowing less compliant operators to gain market share and create instability,” Regulus cautioned.

Strategic Restructuring: UK & Ireland Integrated into International Business

Flutter’s decision to integrate its UK and Ireland segment into its broader international operations, announced in November, has drawn scrutiny from industry observers. Regulus noted that this change signifies a departure from viewing the UK&I segment as a standalone economic driver, given that it previously accounted for 43% of the group’s EBITDA.

While some analysts view this shift as a move to enhance operational clarity, they also recognize that it underscores Flutter’s intent to pivot away from traditional markets toward rapidly evolving ones, predominantly in North America and Latin America. Birkin emphasized that this strategic realignment is influenced by tightening regulations and challenging trading conditions in mature markets like the UK and Europe.

Prediction Markets: Navigating Uncertainty

Flutter’s management highlighted prediction markets as a potential growth avenue during their earnings call; however, they await regulatory guidance from the Commodity Futures Trading Commission (CFTC) regarding compliance in the U.S. Notably, the Nevada Gaming Control Board recently issued a cease-and-desist order to prediction market operator Kalshi, signaling potential hurdles for future market entries.

Analysts from Truist Securities indicated that, while current prediction products may not directly compete with regulated sports betting technologies, they present betting options in states lacking comprehensive regulatory landscapes. This could be an advantage, albeit with considerable risks.

Mixed Market Response to 2025 Guidance

The response to Flutter’s 2025 financial outlook has been markedly mixed among analysts. The company projected revenue targets between $15.48 billion and $16.38 billion, with EBITDA expectations of $2.94 billion to $3.38 billion, aligning closely with guidance provided during their previous Investor Day in September.

Regulus Partners expressed a cautious optimism, suggesting that while the company might meet or exceed its guidance, they anticipate a divergence between U.S. performance and international markets. Morgan Stanley analysts predict that Flutter will likely achieve the upper limit of its revenue target ($16.29 billion) but may underperform at the lower end of their EBITDA forecast ($2.36 billion).

Meanwhile, Macquarie adjusted their 2025 EBITDA expectations downward by 0.25% to $3.25 billion, citing current trends. Truist also revised its projections, lowering its EBITDA guidance by 3% due to a more conservative outlook on new international mergers and acquisitions, while highlighting potential upside driven by favorable trends in the U.S. market.

Overall, Flutter’s 2024 earnings reveal both significant opportunities and serious challenges. While the company’s strong performance in the U.S. sports betting sector is commendable, its future growth will depend on balancing investments across diverse markets while navigating regulatory landscapes and competitive pressures.