Entain rises after BetMGM lifts outlook on lower costs, strong online growth

BetMGM, the joint venture between Entain and MGM Resorts, significantly upgraded its full-year EBITDA guidance for the second time in July to at least $150 million, up from $100 million, following a strong first half where EBITDA already reached $109 million. This positive revision stems from robust Q2 performance, with net gaming revenue climbing 36% year-over-year to $692 million and EBITDA reaching $86 million, well above consensus estimates, driven by stronger-than-expected growth in online sports betting and iGaming coupled with reduced promotional spending. The improved outlook, which also included raising full-year net gaming revenue guidance to at least $2.7 billion, led to a rise in Entain shares and suggests a mid-single digit upgrade to Entain's EPS.

Analysis

The BetMGM joint venture, co-owned by MGM Resorts and Entain, has demonstrated significant operational momentum and improving profitability, prompting a second upward revision to its full-year guidance in July. The venture now anticipates at least $150 million in full-year EBITDA, a 50% increase from the prior forecast of $100 million, supported by a first-half EBITDA of $109 million which has already surpassed the original annual target. This outlook is underpinned by a strong second quarter where net gaming revenue grew 36% year-over-year to $692 million and EBITDA reached $86 million, substantially beating the consensus estimate of $36 million. Critically, this growth is becoming more profitable; promotional costs as a percentage of handle decreased from 4.0% to 3.1%, driving a 1.3 percentage point expansion in net gaming revenue margin to 6.6%. Analyst commentary from Jefferies reinforces this view, attributing the performance to fundamental product improvements rather than volatile sports margins, and anticipates a mid-single-digit earnings per share upgrade for Entain. While growth was robust across both online sports betting (+56% revenue) and iGaming (+29% revenue), market share remained stable at 8% and 22% respectively, indicating the gains are from market growth and monetization rather than capturing share from competitors.

Key Decisions for Investors

• Investors should view this update as a strong positive catalyst for both MGM Resorts and Entain, as the accelerated path to profitability for the BetMGM joint venture enhances the value of their respective 50% stakes.
• The noted improvement in operational efficiency, specifically lower promotional spending and expanding margins, is a key positive indicator that should be factored into valuation models, suggesting a sustainable long-term earnings profile is developing.
• Given the second consecutive guidance upgrade and significant earnings beat, current financial models for both parent companies likely require upward revisions to account for the higher-than-expected contribution from their digital gaming operations.
• While growth metrics are strong, the stable market share figures suggest investors should monitor competitive dynamics, as any need to increase promotional activity to gain or defend share could pressure the recently achieved margin improvements.