Global online gambling firm 888 Holdings (888) saw its shares drop 16% on Thursday after it lowered full-year profit guidance amid weaker-than-expected third quarter trading.

The news weighed on the shares of fellow gambling companies Entain (ENT) and Flutter Entertainment (FLTR) which fell around 4% apiece.

Ladbrokes owner Entain issued its own warning on Monday (25 September) citing softer than expected third quarter trading, leading to a 7% fall in its shares on the day.

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WHAT DID 888 SAY?

After a ‘mixed’ performance, the company now sees third-quarter revenue down 10% year-on-year to around £400 million.

Ongoing ‘significant’ impact from compliance changes in dotcom markets, customer-friendly results in September and the implementation of safer gambling measures were blamed for the softer-than-expected outcome.

As a result, the 2023 EBITDA (earnings before interest, tax, depreciation, and amortisation) margin is now expected to be 18-19% rather than ‘at least’ 20% as previously expected.

Executive chair Lord Mendelsohn commented: ‘We are making significant strides to improve the quality and long-term sustainability of our revenues, but performance in Q3 has been below our expectations, and this means we now expect to end the year with EBITDA below our prior expectation.’

‘This has been an important quarter for the business with the announcements of Per Widerström as our new chief executive and Sean Wilkins as our new chief financial officer, who I am very confident will lead the business through its next phases of growth and I look forward to Per starting in mid-October.

Entain shares gain 5% on strong trading and profit guidance upgrade

Looking further out the company maintained its target of more than £2 billion of revenue in 2025 and earnings per share of 25p while reducing net debt to EBITDA to under 3.5 times.

EXPERT VIEW 

AJ Bell investment director Russ Mould commented: ‘The William Hill owner’s profit warning reflects the impact of regulation as it is forced to do more compliance work, slowing down customer acquisition.

‘Combined with the warning from Ladbrokes owner Entain earlier this week it’s clear the sector is coming under ever greater regulatory pressure as countries look to reduce the social harm caused by gambling.

‘888’s problems go beyond that factor as its takeover of William Hill’s assets in 2021 saddled it with very substantial levels of debt.

‘News the one-time directors of GVC (now part of Entain), including its former chief executive Kenny Alexander, had taken a stake helped boost a bombed out share price over the summer. Now the really hard work begins and the incoming management team of Per Widerström and Sean Wilkins have a lot to do.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (Ian Conway) own shares in AJ Bell.

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