Thursday, 9 December 2010

Valuing Betfair

Ok, I have got a bit of time spare at the moment and I thought I would have a look at this in a bit more detail, inspired by Scott Ferguson's excellent Blog. Also they have a Half Year Results announcement due on Tuesday 14th December, so it may be timely.

I don't want this post to appear (regardless of my own thoughts) a bashing exercise, but more of a basis for some discussion. I am no Accountant, but am invested in Shares and on the back of this have picked up a rudimentary knowledge which I will try to apply here.


The only information I have to go on are the Betfair Results which can be freely obtained from here - These are the results for the Year ending 30 April 2010.

OK let's look at some facts:

Core Betfair Revenue (I am not interested in 'Other Investments' maybe that is a mistake?)



You don't need to be a Rocket Scientist to work out this is a poor growth rate year on year (~5%) for a company with such a lofty valuation.

In September 2008 Betfair introduced their Premium Charge so you could argue that the majority of this increase could simply be down to this additional charge. Where is the organic growth? Is there any?

Betfair Group Operating Profit



What? In the Prospectus that was released prior to Flotation this was apparently due to massive Infrastructure Investment and World Cup Marketing. OK fair enough. I assume this will bounce back quite nicely when the World Cup figures are included in the release next week? I'm not convinced. Also the Asset figure does not seem to have increased to reflect the Investment.

Current Assets - Cash and Cash equivalents



On the face of it, impressive. There is no doubt Betfair are good at generating Cash. Also it has to be said the Company has no Debt which is fantastic. The problem I have with this is they are only owed 22m but owe 115m - Does £151m in Cash seem quite so impressive now?

Look I have missed out loads (and probably don't understand a lot more) but can someone justify for me how this Company is valued at in excess of £1 Billion? Yes they have first mover advantage and hardly any viable competition - But are the best years behind them? By their own figures they have 3 Million 'Active' Accounts (A lot of these will be Multiple Account Holders)- Only so many of these will want to play on the Arcade or Casino, especially with the recent negative press they have had (This has even made Wiki now)

The Poker side of things could have been a massive growth part of their future, but I am pretty sure this will not have grown in the latest figures. Since the move to OnGame I will be amazed if they have even stabilised this side of the business, let alone grown it. (The root of my fall out with them and I don't think I am alone)

The caveat to everything above is if a new market opens up for them such as the US, then I can start to understand the vaulation.

Ok I started with time and I may add to this over the coming days, but my 4 year old has just decided my time has run out..........................

What do you all think? Am I being too simplistic? Am I going to look stupid in a few days time when the Half Year results are released? (No change there then)

Just to reiterate I am not looking for a fight here, just putting my opinions down on record.


  1. I like this! It demonstrates the love/hate relationship that all you sports traders have towards Betfair. I am an accountant, dont understand or take part in betting in any way (as you know and have said!), and I cant put a valuation on BF anymore than you. It suggests that the prospectus doesnt disclose key elements of how the profits are generated (widely held view). Put it up on The Sports Exchange and see what Adonis has to say.

  2. Cheers Gordon, it is indeed difficult. I must be missing something somewhere, but for the life of me I can't find it.

  3. And have a go at the Tote now, lots of possible buyers want to understand the pricing, as do Lazards who are pushing the sale of this perennial government 'asset'.