Goldman Sachs Downgrades Entain Amid Concerns Over Online Growth

In a financial twist that sent shockwaves through the gaming industry, investment banking titan Goldman Sachs has officially downgraded Entain from a buy to a sell, marking a pivotal moment for the renowned Ladbrokes and Bwin owner. The reason behind this drastic shift? Lingering concerns about Entain’s growth trajectory, especially within its online gaming division, have cast a shadow over its prospects. As a result, Goldman Sachs has revised the price target, signaling a potential sea change for this industry heavyweight.

In an unexpected turn of events, Goldman Sachs, a formidable player in the world of finance, has dealt a substantial blow to Entain, a prominent figure in the global gaming arena. This investment banking giant has made the audacious move of downgrading Entain from a buy to a sell, sending ripples of uncertainty throughout the industry. Let’s delve into the key factors behind this seismic decision and their far-reaching implications.

1. Price Target Plummets: Entain’s stock price endured a sharp descent, plummeting from 1,450p to a disconcerting 820p. This drastic reduction, 2.9% lower than the previous day’s closing price, and a further 1.7% drop from the day before, stands as a stark reflection of the tumultuous times ahead.

2. Growth Concerns Loom: The primary catalyst for this unprecedented downgrade stems from Goldman Sachs’ growing apprehension regarding Entain’s recent struggles with growth. The trifecta of regulatory headwinds, intensified competition, and evolving market dynamics has inflicted substantial setbacks on the company’s online gambling operations.

3. Bleak Projections: Goldman Sachs has projected a grim outlook for Entain’s pro-forma online growth, with expectations of negativity throughout Q4 2023 and H1 2024. The online division is not anticipated to regain its footing until the latter half of the following year.

4. Earnings Per Share Trimmed: The financial ramifications of this downgrade ripple even further as Goldman Sachs slashes earnings per share estimates for 2024 and 2025, forecasting a staggering 30% reduction compared to previous figures. Additionally, free cash flow has taken a hit, amplifying the concerns.

5. BetMGM’s Market Share Erosion: A particular thorn in Entain’s side is its BetMGM joint venture with MGM Resorts International, which has witnessed a decline in market share in the United States. Despite holding an 18% market share in US states offering online sports betting and igaming, this stagnation raises critical questions about BetMGM’s future prospects.

6. CPS Settlement Looms Large: Adding to the growing list of worries is Entain’s recent settlement with the Crown Prosecution Service (CPS) concerning historical activities in Turkey. This in-principle Deferred Prosecution Agreement (DPA) will require Entain to pay £585.0 million, a sum larger than initially anticipated, which threatens to cast a shadow over its performance in the coming years.

7. Changing Face of Entain: The past has seen significant changes at Entain, including leadership shifts and strategic realignments, highlighting the industry’s evolving landscape. These adaptations reflect the company’s determination to navigate a complex regulatory environment.

8. Financial Position and Cost Savings: While Entain reported record figures in H1 2023, its Q3 update revealed a deceleration in online net gaming revenue growth. The company’s leadership has embarked on a journey to secure financial stability and long-term success through Project Romer, aiming to streamline operations and achieve cost savings of £100.0 million by 2025.

As Entain grapples with these transformative challenges, the gaming industry watches with bated breath to witness its journey to resurgence or potential reinvention. The shadow of uncertainty looms large, but the resilience of this industry heavyweight remains undeniable.