What's going on?

Paddy Power is hoping that its big bet on merging with Betfair pays off. But even though revenues have improved, the share price was sent lower by higher than anticipated costs.

What does this mean?

Step back a couple of years: Paddy Power had expanded to become one of the largest bookmakers in Europe, with a chain of betting shops in the UK and Ireland. Betfair had grown to become the largest online betting exchange (which allowed users to offer odds as well as place bets) in the world. In 2015 they announced a merger and their share prices jumped because the businesses appeared to complement each other nicely. Though the company has been busy integrating the two different platforms, this comes with a cost. And taking that into account, the company reported that it lost money, even though revenue rose 18%.

Why should I care?

For markets: Investors may be watching to see if bigger really is better.

Bigger companies not only get access to more consumers, but also can complement each other (in this instance, with Paddy Power�s shops and Betfair�s online market). But for investors to stay interested, they�ll want to see both more revenue uplifts and fewer costs as time goes on.

The bigger picture: Technology could become more valuable as barriers come down.

The neighborhood bookie has been an integral part of British culture for a long time, but in other countries, like the US, gambling is only just becoming more accessible to people outside of traditional meccas like Las Vegas or Atlantic City. Technology has made it far more difficult for authorities to block gambling and many are choosing to legalize it rather than fight a losing battle. In the long-term, Paddy Power Betfair and other tech-driven gaming firms may benefit from their exposure to the broader trend of gambling becoming more accessible.