It’s not just increased betting that’s feeding the furnace at Betfair. Chairman Ed Wray and departing CEO David Yu have prepared well for a downturn in consumer spending, pruning away at the non-core interests of the business and streamlining operations. This explains why earnings are up by over a third, while turnover has crept up just 1% to £191.3m.
This is no ordinary bookies. Betfair is an intermediary between gamblers wanting to place a bet or offer odds. While its punters like a flutter, Betfair revenues are assured by a clever business model that takes a small commission – 2 to 5% - on every bet based. Punters may win or lose but Betfair always makes money. It’s also been incredibly agile in the smartphone market: mobile betting is up 100% in the first half and is set to scoot up a further 100% in the second.
You’d never guess, looking at the robust figures, that Betfair’s management team is in a bit of a muddle. Chief financial officer Stephen Morana has just been appointed as interim chief executive while CEO Yu prepares for his exit at the end of this month. Bean-counter Morana is the old-fashioned ‘safe pair of hands’ while Breon Corcoran, ex-Paddy Power COO kicks his heels for eight months (he’s contractually-bound to wait that period before joining the rival business). His start date is set for August.
Alas, these over-the-odds results haven’t done enough to soothe investors. Betfair has been buffeted by fears over international gambling laws, although it has escaped relatively unscathed so far. A number of high-profile departures from the board have also done nothing for the firm’s image. But its flat-lining share price is mostly down to the handling of its flotation last year. Sentiment in the City is that the prime reason for the listing of a modest 10% stake was to put some cash in its founders' pockets, rather than delivering value to its new shareholders. As of 11am today, shares are still down by 4.5%.
The market has a long memory. Betfair’s going to get a whole lot more consistent growth under its belt to win over these elephants, not to mention slicker investor relations...