Betfair on a losing streak as shares fall again

The gambling exchange has seen its shares take a dive - despite profits rising by 52%...

by Emma Haslett
Last Updated: 15 Sep 2011
The odds are still not favouring Betfair: the online betting exchange has seen its share price fall by 1.1% to 763p this morning. At first glance, the reasons for this are not entirely clear: it’s just recorded a 52% rise in full-year profits, from £15.1m last year, to £23m in the year to 30 April, while revenue rose by a similarly respectable 15.4% to £393.3m. But investors clearly feel Betfair is missing a trick – and CEO David Yu’s decision to quit probably hasn't helped their confidence…

On the bright side, Betfair (whose unique model pits gamblers against each other, thereby removing the need for a bookmaker) said there were 916 million bets made over the course of the year – a record number, 20% up on last year. And although the number of people making bets on horse-racing fell, football revenues were also up by 24%. So not all bad, by any stretch of the imagination.

However, its current share price of 760p-odd is barely more than half the £13 they were priced at when the business listed  in October. That’s partly to do with a series of technical issues that have hit the website over the past few months (including teething problems with a new poker platform). But it’s also to do with the company’s longer-term outlook: two days ago, the company’s CEO, David Yu, said he wouldn’t be renewing his contract when it expires next October after a troubled nine months, during which £200m was wiped off Betfair’s value.

To be fair to the company (and Yu), this is not entirely its fault: at the beginning of the year, shares fell across the sector on fears that US and European regulatory burdens would slow growth. But analysts reckon that Betfair could be doing more to expand.

After Yu's announcement yesterday, Investec analyst Paul Leyland said the company’s problems are structural, as well as leadership-related, and it ‘may prove difficult to turn the tanker’. But, as we said when it first floated, Betfair is a profitable, cash-rich and largely debt-free business. So sort out those technical and structural problems, and investors could still be on to a winner…

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