Betfair misses despite hitting its goals as traders and analysts go cold on fears that the firm is over-valued

 
Suzie Neuwirth
Betfair’s sports revenue went up 17 per cent to £328m last year, boosted by the World Cup, but the FTSE 250 player has lost City support
The City stopped championing Betfair yesterday, despite premier full-year results from the online bookmaker.
Shares in the FTSE 250-quoted firm slid throughout the day, with analysts warning that the stock was overvalued due to intense competition in the online gaming market.
Betfair closed 3.9 per cent lower at 2,416p, against the FTSE 250 index that closed 0.2 per cent down.
“We believe that Betfair is an excellent operator in a highly competitive market but that the valuation may have lost sight of quite how competitive [it is],” said Numis’ Ivor Jones.
“The valuation would be appropriate for a market leader, but there are a number of highly competent, strong competitors around. Further growth means taking market share, which they will probably do but they won’t wipe the market.”
Betfair reported a 21 per cent rise in 2015 revenue to £476.5m and a 32 per cent rise in core earnings to £120.2m, benefiting from a high volume of bets placed on the football World Cup and record customer numbers at horse racing events the Cheltenham Festival and the Grand National.
It hiked its dividend by 70 per cent to 34p per share and new customer acquisition went up 65 per cent due to increased marketing investment.
“We have momentum, current trading is good and we are confident we can deliver our expectations for the coming financial year,” said the firm’s management.
But analysts warned that the recent closure of a tax loophole will squeeze earnings, putting Betfair’s lofty share price – which has more than doubled over the past year – into question.
Since December, UK-facing online gaming companies must pay 15 per cent tax on profits to the Treasury, even if they are domiciled abroad.
This cost Betfair £19m last year and is forecast to trim £32m off its earnings next year.
“While we believe Betfair is the highest quality online gambling operator, we feel revenue growth will be slow moving forward as competition increases due to reduced industry profit margins from the UK Point of Consumption (Poc) tax,” said Karl Burns, analyst at Panmure Gordon.
Betfair’s core product and key revenue generator is a unique betting exchange that allows gamblers to bet against each other, but it is complicated to use for the inexperienced punter.
It launched an integrated fixed odds sportsbook offering two years ago so that it could effectively compete with Bet365 and the online divisions of William Hill, Gala Coral and Ladbrokes.
The online sportsbook market is expected to see consolidation going forward, as smaller players get squeezed out by higher taxes and larger companies look to beef up their market share.

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