Flutter Entertainment just gave investors a reason to be nervous about the sports betting industry, and DraftKings is next up.
Flutter, the company behind FanDuel, reported third-quarter revenue of $3.87 billion, an increase of just 2% from last year. Adjusted EBITDA dropped 25% to $360 million, and the company recorded a $1.15 billion net loss.
Those aren’t exactly numbers that get investors excited.
What makes this interesting is that FanDuel’s U.S. business actually showed signs of improvement. U.S. revenue increased 6%, and sportsbook betting volume grew. But higher spending on promotions, prediction markets, and expansion left the U.S. division with just $3 million in adjusted EBITDA.
That’s the part that would concern me as an investor. Growing revenue is great, but eventually these companies need to demonstrate that growth translates into meaningful profits.
Flutter also lowered its full-year revenue and adjusted EBITDA guidance. And when a company starts reducing expectations while spending heavily to defend its position, investors should pay attention.
Now It’s DraftKings’ Turn
DraftKings reports earnings November 5, and Flutter’s results have made that announcement even more interesting.
I actually like the long-term opportunity in sports betting. The industry has room to grow, and both FanDuel and DraftKings have established brands.
But I wouldn’t rush into either stock simply because sports betting is popular.
Prediction markets are creating another competitive challenge, and companies are spending money to attract and retain customers. That could pressure profitability even as betting activity grows.
DraftKings now has an opportunity to show investors whether it can manage those pressures better than its biggest rival.
If DraftKings delivers strong revenue growth and improving profitability, that could separate it from Flutter. But if its expenses are climbing while earnings disappoint, investors might start questioning the entire industry’s valuations.
My take? I like the business opportunity, but I’m cautious on both stocks until there’s stronger evidence that customer growth is translating into profits.
Sports betting is a great business to be in when the numbers work. Right now, investors need to make sure they’re not the ones taking all the risk.
