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I think you are missing the point. A company making £50 million profit with no chance of growth can never, EVER, be valued at anything close to what they are at the moment, regardless of weather they have no competitors or not.
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"If Betfair's shares fall, then the signal to potential competitors is that betting exchanges are not a sector in which to invest"
No, all it means is that anyone stupid enough to pay £15 for something worth a third of that deserves all they get. It's got absolutely nothing to do with the viability of a potential competitior whatsoever. |
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It's no different to backing man city to win the league at a fraction of what their true price should be. Same principles exactly. You are giving away a collosal amount in EV.
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Eh? I'm not interested in whether the share price is right or wrong.
I'm just repeating johnnie walker's point that a low share price for Betfair discourages competitors from entering the betting-exchange market. So if, as a punter who uses Betfair, you want to see a competitor to Betfair, then you need a healthy share price for Betfair. Unless the Betfair share price is healthy, nobody is going to invest the millions needed to start up a competitor. |
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To put it another way, Betfair IS the entire betting exchange sector.
If the share price values Betfair (and hence the entire exchange sector) at, say, £1.5 billion, then a potential competitor may consider investing millions to start up a new company, because there appears to be a lot of money around to compete for. But if the share price values Betfair at, say £0.5 billion, then there is not enough money around to make the risk/reward ratio attractive for a competitor. To repeat, I couldn't give a fig whether Betfair's share price is right or wrong or a good or bad investment. My only concern is as a user of a betting exchange. |
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But who says the correct price of £5 is a "low" one? The only reason you or jw seems to have to justify it is that the original price was 3 times that. So what - I really don't understand the point you make. Any would be competitor who wanted to start up from scratch would not have to raise anything like the amount that betfair are valued at, either now or when they floated, so your point is pretty irrelevant in all fairness.
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Screaming, read my post. You need to look at this in the context of the wider market. By anyones opinion, any company valued at £1.5 billion with only £50 million profits has to have potential for decent future growth, or it is ridiculously overvalued. Betfair has no prospect of future growth regardless of it having no competitors. That is why £5 a share is a fair price.
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Johnnie walker's point, turtleshead, was that a serious newcomer would have to raise an eye-watering sum to compete. After all, the field is already littered with failures who invested merely enormous sums and failed to make a dent in Betfair. God only knows how much Dermot Desmond has dropped, yet got nowhere.
Whippet: for the last time, I'm not arguing whether or not £5 a share is a fair price. I'm happy to concede you are 100% right. OK? All I'm arguing is Johnnie Walker's point that £5 a share does not represent a big enough potential reward to entice a newcomer into the market. A newcomer needs evidence that shares in betting exchanges might be potentially over-valued. |
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Why the hell are you debating this then?
We are dicussing whether betfair are overvalued or not. People have been saying that because it is a monopoly, it isn't overvalued. Whether or not the barriers to entry are high or low is completely irrelevant. In the wider context, a £1 billion company only making £50 mill a year, with no potential for future growth (regardless of whether there are any competitors) is overvalued, there is no two ways about it. |
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no potential for future growth? what if china, india, japan, usa etc legalise gambling/exchanges?
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Then, as stated before, a rival in that country will spring up with much lower commission, no premium charge, better customer service (wouldn't be difficult!) etc etc etc.
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Data on gambling worldwide
http://www.morssglobalfinance.com/the-global-economics-of-gambling/ Note betting is a growth business, increasing around 7% per annum Otherwise, barriers to entry aren't that high and viable competitors will come, even though it may not seem like it at the moment. |
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shares up 63p today ......[smiley:crazy]
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