When investors ponder the concepts of momentum trading or the momentum factor, it’s often from a bullish perspective. That’s not wrong, but momentum is agnostic. Like a roller coaster, it can soar or sink.
Flutter Entertainment (NYSE: FLUT) is in the latter camp. Call it the FanDuel falling knife (Flutter owns FanDuel). Down a staggering 48% year to date, the sports betting stock closed at $11.40 on March 3, or barely more than half of where it closed on Jan. 29, 2024, its first day of trading on the New York Stock Exchange (NYSE).
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In other words, the gambling stock is serving up the kind of momentum that market participants want no part of experiencing. Pinpointing when or whether the downside ends is challenging, and recent price action suggests prospective shareholders can get better pricing than what’s available today.
Still, there are reasons to believe Flutter can bounce back over the long haul. Here’s why.
Dating back to last year, some of the headline risk afflicting stocks like DraftKings (NASDAQ: DKNG), which is a competitor, and Flutter has been attributable to the perceived competitive threat from prediction markets. Platforms such as Kalshi and Polymarket are experiencing surging volume, with much of that turnover tied to sports event contracts.
Prediction markets have advantages, not the least of which is the ability to offer services to 18-year-olds (it’s 21 for betting companies) and to operate in states that prohibit sports wagering, including California and Texas. Even with all of that, yes/no exchanges aren’t harming the FanDuels of the world to the extent investors previously thought.
In his latest letter to shareholders, Flutter CEO Peter Jackson said the company “undertook a comprehensive review” of prediction markets that could erode FanDuel’s market share. The analysis, which the Flutter boss deemed “robust,” was encouraging in that it didn’t turn much in the way of cannibalization and handle erosion.
The implication is that the fears of pressure on gambling equities from prediction markets is arguably overblown. And Flutter isn’t sitting idly by. By way of FanDuel Predicts, the company is a player on the U.S. prediction markets stage, and it’s planning to spend up to $300 million this year to bolster that business. Those investments may be warranted because the company sees “encouraging” early signs from FanDuel Predicts. That may be appealing to investors at a time when there’s a dearth of credible prediction market equities to consider.