A Roller Coaster Year: A Flutter Case Study

At Forager’s December 2023 CIO letterSteve Johnson spoke about increasing volatility and a reduced focus on intrinsic value:

“I don’t think any rational person is going to change their market valuation by 20% based on monthly inflation data. Rather, the financial markets are controlled (in my opinion more than ever) by money that doesn’t care what stocks are worth, only where they will trade in the short term. The computer says the rate is equal to the sale. The computer says a rate cut equals a purchase.’

It’s a story evident in both markets and individual stocks. Global online gambling giant Fun Flutter (LES:FLTR), held in the Forager International Shares Fund (the “Fund”), is a current case study.

While Flutter holds market leading positions in the UK and Australia through the Sportsbet brand, its most valuable segment is the number one position in the growing US market. The fund first invested at the end of 2021 based on the thesis that it is creating a leading position in the US market and will grow immensely in the coming years.

This thesis quickly became mainstream and the share price rose significantly during the second half of 2022 and the first half of 2023. The fund sold many of its shares by the first half of 2023, although it remained an important investment. In the second half, Flutter shares began a slow but steady decline, falling nearly 30% by November.

There were real concerns to ponder. After a period when Flutter’s FanDuel brand had it perhaps too easy, a competitor DraftKings (NASDAQ:DKNG) has proven to be a resilient number two player. The FanDuel brand grew significantly faster than DraftKings in 2022 and the first quarter of 2023. But DraftKings grew faster during the Northern Hemisphere summer of 2023, which coincided with the legalization of online gambling in Massachusetts, DraftKings’ home state.

Draftkings’ improved performance could have knocked our valuation of Flutter down by a few percent. It was mostly a case of both companies gaining market share at the expense of smaller players. Consolidation will prove to be good for the bottom line.

Flutter’s mid-January business update puts many concerns to bed. The company claimed a 51% share of the sports betting market (based on net revenue) in the fourth quarter. Perhaps more impressive has been its growth in iGaming. As a sports brand, FanDuel lags behind casino-focused BetMGM and DraftKings in iGaming. However, over the past 18 months, iGaming’s market share has grown from 19% to 26% and has now moved into second place for the first time.

FanDuel achieved scale and profitability earlier than anyone else in the US market, and we expect Flutter to grow rapidly overall.

The shares, previously listed in London and Ireland, left their Irish listing and listed on the New York Stock Exchange in late January. New York will likely become his primary list in short order. Stocks are attracting much more American attention than before.

We added to the investment in late 2023, although less aggressively than we should have. Flutter’s stock price is up 35% from recent lows in November, which brings to mind another quote from Forager’s December CIO report:

“However, all this focus on the next data point makes it a bit easier for investors with a longer investment horizon. The more the weight of money is focused on the short term, the more opportunities there are for those who take a long view.”


This is an exception to the Forager International Shares Fund Monthly report for January

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