Shares of Flutter Entertainment (NYSE: FLUT) have dropped 15.72% in the last month as investors worry about the convergence of football and prediction markets, but one analyst thinks the online gambling behemoth has the branding advantages it needs to withstand the storm.
Dan Wasiolek of Morningstar stated in a study on Wednesday that Flutter, the owner of FanDuel, is in a unique position to benefit from the expansion of iGaming and online sports betting in the United States. According to the analyst, FanDuel's revenue share of 35% to 40% in the states where it operates highlights the branding advantages it has as part of a duopoly with DraftKings (NASDAQ: DKNG).
"Flutter Entertainment has leveraged its leading technology and product offering into an advantaged global brand, the source of its narrow moat, which spreads across the US, the UK, Australia, and other international markets like Italy,” observes Wasiolek.
Flutter companies like Betfair, Paddy Power, and Sisal, among others, enjoy enviable market share outside of the United States, and FanDuel is one of the most valuable game brands in the world. This is relevant to the discussion of prediction markets since Flutter has an edge over rival DraftKings in that it can offset some of that risk through its global operations.
Competitive Advantages of the Flutter Brand
Although some analysts admit that prediction markets like Kalshi may hurt Flutter and DraftKings' profits, it's important to note that some experts think the volume of football wagers in prediction markets is exaggerated and that there is general agreement that FanDuel's sports betting product, which includes parlays, is far better than what is available on yes/no exchanges.
Furthermore, Flutter's branding advantages have killed competition both domestically and internationally. The US sports betting cemetery is home to about a dozen businesses, the majority of which have arrived in recent years. They ended up there because they lacked the financial means and branding necessary to compete with Flutter.
“While smaller peers are falling by the wayside, Flutter’s competitive and financial position is allowing it to acquire emerging digital gaming operators in various international markets, which it is then integrating into its leading product and risk management tools,” adds Wasiolek.
The operator's name recognition is a major benefit, as the analyst confirmed, noting that gambit hasn't dramatically impacted FanDuel's market position and that other smaller domestic online sportsbooks are already investing freely to draw in new consumers.
The stability of the Flutter balance sheet
Flutter declared last year that it will repurchase $5 billion worth of its stock over the following four years; according to Wasiolek, this amount could increase to $6 billion. Since then, the business has regularly bought back its stock, and the recent decline brought on by the prediction markets may present an opportunity for the operator to acquire shares at a discount.
Strong cash flow, no impending debt maturities, and a reasonable debt/earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio all help Flutter return capital to investors and leverage acquisitions for expansion.
“We see Flutter’s financial health as sound. Debt/adjusted EBITDA stood at 3.1 times in 2024. We see this as manageable, given that the company has no meaningful debt due until 2028, when $1.6 billion is scheduled to mature,” concludes Wasiolek. “We see no issues with servicing its $9.9 billion in total debt, since we forecast $15 billion in free cash flow to the firm during 2025-29.”
