Flotation on the stock market is often the fast track to riches but the move to go public has backfired in spectacular fashion on Betfair. They are probably a little way off pressing the panic button but the fact that they’ve just unveiled one of the swiftest share buybacks in City memory is not a good sign for investors.
The betting exchange said it planned to re-purchase £50m shares from investors just nine months after its flotation, which has subsequently seen the company shed 41% of its value after a series of disappointing profit forecasts, regulatory concerns and management departures.
Share buybacks are a popular tactic for mature businesses but normally aren’t initiated unless companies can’t come up with a more efficient way of deploying spare cash. However, Betfair was sold to investors last October as a company that had strong growth potential – is the current management out of its depth, or have they simply run out of ideas?
The move to buoy the share price comes after Betfair confirmed that David Yu, its under-fire CEO, would be leaving the company following the group’s troubled introduction to the public markets. It also follows a string of other unscheduled departures, including those of its chief product and services officer and Robin Osmond, chief executive of financial betting exchange LMAX. Matt Carter, director of architecture, research and prototyping, has also left. Even Betfair‘s own employees believed its management is lacking direction and that lack of confidence has leaked into the public domain, with catastrophic results!
The latest development has come about after the company announced its full-year figures, which showed pre-tax profits up 49% to £26.6m on revenues up 15% at £393.3m. However, the numbers were flattered by last year’s World Cup and the company have conceded that revenue growth during the financial year could have been stronger.
Leading stock market analyst Geetanjali Sharma has gone as far as advising his clients to sell Betfair shares, adding, "We are disappointed by the revenue trends. We also anticipate a period of uncertainty as the search for a CEO begins." It’s all a bit of a mess and makes you wonder how the venture that couldn’t fail is somehow managing to make a very concerted effort to do so.
