The company, which is backed by Japanese lender Softbank, is thought to be examining an autumn listing which would potentially net co-founders Ed Wray and Andrew Black hundreds of millions of pounds.
The news will renew hopes of a spree of initial public offerings (IPOs) in 2010 as private equity owners take advantage of calmer markets to exit investments and company managements look to raise fresh capital.
Last week, holiday services company Travelport announced its intention to hold a £1.1bn IPO on the London Stock Exchange.
Other well-known names in the frame are retailer New Look, which has been eyeing a £1.7bn flotation since last year, and Merlin Entertainment, the owner of the London Eye and Legoland.
Further down the market capitalisation scale are Blackburn-based Promethean, which provides interactive whiteboards and educational tools for schools, computer games company Codemasters and semiconductor manufacturer Icera, all of which are mulling IPOs.
Betfair offers a twist on online punting by allowing gamblers to bet against one another on sports matches and horse racing. It also hosts internet poker and casino games such as blackjack and roulette.
Last year, the company reported a 29 per cent increase in earnings to £72m on the back of 27 per cent higher sales at £303m. Becoming a public entity would put it in a position to consolidate smaller players.
Responding to suggestions of a flotation in the third quarter, a spokesperson for Betfair said: “This is only speculation, and we do not comment on speculation.”