Flutter Entertainment shares hit lowest since May 2020

There are some positives in these annual results, but a 10% slump in the share price suggests there is some way to go before expectations in the City and among investors can be fulfilled.

Flutter Entertainment (LSE:FLTR) is still putting the foundations in place for its strategy and, in the meantime, it is the US where prospects are shining most brightly.

The acquisition and tie-up with the Stars Group and FanDuel are already beginning to show their worth following the previous relaxation of US gaming rules. FanDuel, for example, had a market share in the fourth quarter of 40% in online sports betting, propelling a revenue increase of 113% in 2021 to £1.4 billion.

The integrated acquisition of the Stars Group, meanwhile, was a major factor in group revenues increasing for the year by 37%. On the current trajectory, FanDuel should now be showing positive earnings overall by 2023, while the ever-expanding US market on a state by state basis is opening up a whole new world of possibilities.

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Nor is Flutter’s ambition confined to the US. The Australian business is showing promising signs of growth, while the recently announced acquisitions of Tombola and Sisal, Italy’s leading online gaming operator, are also indicative of a group which is nearing the stage at which the building blocks can truly be said to be in place. The UK retains a market share of almost 30% while the international business generally is progressing at a fair clip.

In the meantime, the sector in which Flutter operates means that the company’s progress is not plain sailing.Quite apart from the escalating costs which the company is allocating to further US customer acquisition, the spectre of regulation in the UK still looms large. Affordability checks and the ongoing government review of the Gambling Act could well prove thorns in the side for the sector in the future. The gaming industry is a traditionally easy target for authorities needing to raise taxes and, on this side of the epidemic, this could become a focus as governments look to repair their bruised financial positions following the major costs incurred.

Challenging Covid comparatives, consumers spending time on other leisure activities following the easing of restrictions, and a slew of customer-friendly sports results have all contributed to a difficult time in which adjusted earnings were in line with expectations, although showing a decline of almost 20%. While the headline pre-tax loss figure is largely driven by a non-cash writedown, it nonetheless takes the shine from what may yet prove to be a pivotal year.

Even so, Flutter has shown itself to be an ambitious empire-building player, and the potential in the US in particular has been a major focus of its expansion. Meaningful growth opportunities could also lie elsewhere, and success in any given region allows the reinvestment of cash for future growth there, thus compounding market share opportunities.

The share price gives some indication of the inflection point at which Flutter finds itself, having dropped by 22% over the last year, as compared to a gain of 13% for the wider FTSE100.

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Over the last two years, however, the price remains ahead overall by 33%, while the general view of the stock has strengthened considerably, with the market consensus now coming in at a "strong buy" on prospects. Even so, the initial share price reaction to the numbers is further evidence that there remains some way to go before these expectations can be fulfilled for the company and investors alike.