Entain share price gets oversold ahead of earnings

Entain (LON: ENT) share price has been in a steep sell-off this year, making it one of the worst performers in the FTSE 100 index. It tumbled to a low of 528p on Thursday, its lowest swing in years. It has dropped by over 78% from its highest point in 2021.

Entain has dropped by almost 50% this year while DraftKings has retreated by less than 1% while Flutter Entertainment (FLUT) is up by about 10% this year. 

Entain’s business has been under pressure

The sports betting and online gaming industry boomed during the pandemic as millions of users participated using their stimulus checks. 

At the time, Entain was one of the hottest companies in the sector, thanks to its family of brands, including Ladbrokes, Coral, BetMGM, Bwin, and PartyPoker.

As a result, MGM and DraftKings placed a large bid that valued the company at over £11 billion. Entain, formerly known as GVC Holdings, rejected the offer, noting that it severely undervalued it. 

Turns out, Entain was wrong as its stock has tumbled, valuing it at over £3 billion. Its revenue growth has stalled, competition has risen, and the firm has been forced to pay some huge fines. 

Entain is one of the many pandemic winners that have struggled. Some of the other names are fintech companies like PayPal and Block and telemedicine companies like Teladoc Health. 

Entain earnings ahead

The most recent annual results showed that Entain’s net gaming revenue rose by 11% in 2023 to £4.7 billion while its gross profit rose to £2.9 billion. However, the company made a big loss of over £878 million.

This loss was because the company agreed to pay £585 million to settle a case brought by the HM Revenue & Customs division. The case alleged that the company failed to put enough measures in place to prevent corruption in Turkey. 

Meanwhile, in April, the company published its trading statement, which showed that its business was not growing as expected. Its total gaming revenue rose by 6% on current currency while its business, excluding the US fell by 2%. Inthe UK and Ireland, its NGR dropped by 7% while in its international rose by 8%.

Therefore, the Entain share price will be in the spotlight on Thursday as it publishes its financial results. In its statement, the company will likely highlight some of the measures it is taking to turn around its struggling brand.

A few months ago, it was reported that the company had hired Moelis to advise on potential sales of some of its top international brands like BetCity, Enlabs, CrystalBet, and Enlabs. Such a sale would simplify the company, reduce costs, and potentially lead to a special dividend to investors. 

It would also mark an end to the company’s history of acquisitions that made it one of the biggest players in the sports betting and gambling industries. 

Entain is also facing other challenges in one of its important markets: the United States. Its main business there is a big stake in BetMGM, a company that seeks to compete with the likes of DraftKings and Fanduel, which is owned by Flutter Entertainment. 

The challenge is that BetMGM is a cash incinerator that expects to lose over $240 million while the management sees its EBITDA being $500 million in 2026.

Entain’s challenge is that it is competing with much bigger companies that have substantial cash and equity. While online betting in the US soared to $11 billion in 2023, most of this came from DraftKings and FanDuel, which made over $7 billion.

Conquering the US will be an expensive endeavor that will consume substantial cash from Entain’s balance sheet. Indeed, Evoke, formerly known as 888 Holdings, exited the US, arguing that the costs were prohibitive. 

Is Entain a good stock?

The broader betting and online gambling industry is not doing well, with most stocks in the sector lagging the broader market. Flutter Entertainment, which moved its listing to the United States, has moved into a bear market as it dropped by 20% from its peak.

Similarly, DraftKings stock has crashed by over 36% from its highest level this year as signs of a slowdown emerge. 

Technically, Entain share price seems like it is quite cheap. It remains below all moving averages while the Relative Strength Index (RSI), Stochastic Oscillator, and the Relative Vigor Index (RVI) have all pointed downwards.

Therefore, there is a likelihood that the stock will bounce back as the new Chief Executive Officer, Gavin Isaacs, works to implement a turnaround. Isaacs is an industry veteran with over 25 years in the sector. 

Therefore, a recovery could see the Entain share price rise to over 643p, its lowest swing in May. Besides, Entain is a well-known company with some of the top brands in the industry and oe that is implementing its turnaround well/

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