Turning to another mammal, it’s hard to be anything but bearish on Betfair’s first half results. Core revenue might have increased by 11 per cent over the six months, but growth ground to a halt in the final three. First quarter revenue was up 22 per cent, slowing to just one per cent in the second.
Management brought ebitda in almost on consensus at £35.5m, giving bullish analysts a reason to remain positive. Still, it’s easy for a gambling company like Betfair to protect earnings when revenue falls, because its two biggest costs – marketing and R&D – are easy to cut when times get tough.
Marketing bore the brunt of the reductions, with spend falling by 170 basis points. Quite how management expects to grow the top line while cutting back in this area remains clear, although it does enable them to hit earnings numbers – at least in the short term. Investec is right when it says this approach will just push problems into 2012.
Nor will Betfair have the betting exchange space to itself for long, with traditional bookies quickly improving their own offerings. It should be using this time to steal a march, not falling behind.
Those who backed Betfair at £13 a share when it floated will be sorely disappointed; yesterday, shares closed at 990p, some 24 per cent below the offer price. Still, you pays your money, you take your chances.