At a time when consolidation in the betting industry speeds up among the largest players, we are spending time to review the technical set-up of some of the companies that have no choice but to reach as many online users as they can in order to drive traffic and revenues.
Here we focus on Paddy Power, which hit the headlines today.
The boards of Paddy Power and Betfair announced on Wednesday that they had reached an agreement in principle on the key terms of a possible merger to create one of the “world’s largest public online betting and gaming companies by revenue with enlarged scale, capability and distinctive and complementary brands.” the companies said.
SEO Audit & Online Strategy
Our initial SEO assessment of paddypower.com reveals a technical set-up that needs some serious work, although the website guarantees an excellent mobile user experience.
No surprise about that.
Mobile net revenue accounted for 67% of online revenue, with 78% of active customers transacting via mobile, Paddy Power said in its half-year results today, adding that its marketing costs as a percentage of online net revenue were 21% over the period compared to an average of 27% for its major quoted peers. Was that ever meant to bring a loss of competitiveness?
On the face of it, It’s a long journey for Paddy Power’s customers to reach their desired website page, our depth stats indicate. On top of that, duplications — titles, meta descriptions, and so forth — could ultimately affect the rankings.
There are other technical/on-page issues that we’ll highlight in our full SEO audit on Thursday, which will also include a detailed analysis of Betfair’s website.
Financials
The combination between Paddy Power and Betfair is compelling, according to the two groups, and represents an “attractive opportunity for both companies to enhance their position in online betting and gaming and to deliver synergies, customer benefits and shareholder value.”
Strategically, the deal makes a lot of sense indeed, and Paddy Power shareholders will end up owning 52% of the combined entity.
The terms of the deal seem to favour Betfair, however, which is valued at higher trading multiples than Paddy Power based on the implicit, relative equity value of the two groups, according to our calculations.
Its six-month results ended 30 June show that Paddy Power didn’t necessarily need to find a partner:
- Operating profit growth was 33%, yielding a €80m core income.
- Net revenue were up 25%
- Diluted EPS rose 31% to 144.8 cent
- Some €391m was returned to shareholders through a B share scheme
- The Interim dividend surged 20% to 60 cent a share
Did Paddy Need To Pursue A Merger?
Even before today’s announcement, Paddy Power stock was on a roll, trading on 23x and 20x net earnings multiples for 2015 and 2016, respectively. The shares of Betfair had similarly recorded a great run, but were much more expensive than that.
The market expected Paddy Power to snap up rival Ladbrokes, but the latter anticipated it by teaming up with Gala Coral. A growth play, the good times were likely set to last at Paddy Power.
Revenues and core cash flows were expected to grow by about 10% a year between 2015 and 2017, but its earnings per share could have grown at a steeper pace, at least according to consensus estimates from Thomson Reuters.
Strong P&L numbers were also likely to support a rising dividend yield from 2.3% to 3% over the period.
Before the Paddy/Betfair proposed merger deal was announced, consensus estimates from Thomson Reuters suggested upside of between 7% and 12% for shareholders, but its performance could have been more impressive had Paddy Power managed to prove that analysts had erred on the side of caution, just as it did in recent times.
If you want to discuss any of these topics with our team, please email us at info@hedgingbeta.com
Alessandro Pasetti and Hedging Beta are not invested in any of the shares mentioned in this article.