Good Results, But CEO Adds A Cautionary Note

Published: Friday, September 09, 2005 Online-Casinos.com

GOOD RESULTS, BUT CEO ADDS A CAUTIONARY NOTE

Rate of growth in online poker is moderating says CEO Segal

Party Gaming's results announcement had them front and centre in the UK financial and business press this week, with CEO Richard Segal producing great results, but dampening enthusiasm with the comment that the online gambling boom may be starting to slow down.

Segal's pessimistic view sent the stock price southwards by almost 37 percent, marking the shares down from 156¾p to 121p in the first minutes of trading with more than 8 million shares changing hands, and seriously depressing the stock for the rest of the week.

Nevertheless, the company, which runs the world's most popular online poker site PartyPoker, saw stunning growth in the first half of the year as first-half profit rose 25 percent. Net income increased to $171 million from $136.5 million a year earlier, the Gibraltar- based company said in a statement. Profits rose to $186.3m from $146.6m a year ago

PartyGaming controls about 54 percent of the online poker market, which according to Christensen Capital Advisors has grown from $90 million in 2002 to $1 billion in 2004. Analysts say growth in the industry will outweigh any potential regulatory concerns. The company makes 87 percent of its revenue in the U.S.

But chief executive Richard Segal sounded a note of caution when he said: "As expected, whilst the online gaming market and poker in particular continue to show strong year-on-year growth, the rate of growth is continuing to moderate." One indicator of the slowdown is that although there are still more people signing up to play poker online, their average spend is falling.

PartyGaming saw a 73 percent surge in sign-ups during the six months to end-June and the number of active player days doubled, but the actual yield per player per day dropped by 7 percent from $19.20 to $17.80. Margins for the group also slipped from 64 percent to 59 percent reflecting higher marketing and admin costs.

Segal said that as these trends continued the group will "...adapt its marketing strategy and infrastructure to provide greater focus on customer retention and player value."

He made no immediate comment on whether he might bid for Empire Online, the marketing services group which has strong links with PartyGaming and has received a GBP 791 million approach from rival Sportingbet.

Segal simply said: "We are monitoring developments." Revenues for the first half year soared 81 percent to $437million (GBP 237 million) and earnings before interest, tax, depreciation and the costs of share options and the flotation came in 70 percent higher at $258 million. The share options cost $39.7 million while the share offering on the London Exchange cost $22.6 million. Prior to Segal's cautionary comments, the stock had gained 35 percent since it was offered at 116 pence a share, giving the company a market value of 6.27 billion pounds.

PartyGaming increased the share of revenues from outside the US from 12 percent to 14 percent. Sales in the U.S. gained 77 percent, while growth outside the U.S. more than doubled. The number of players regularly using the company's PartyPoker.com site reached 415,633 in June, an 89 percent increase on the previous year, the company said. The site has gained active players every quarter since it opened in 2001.

The company is seeking to expand in international markets including the U.K. "Poker isn't dead but the talk of 45 percent growth now looks unrealistic," said Robin Chhabra, from Evolution Securities.

"Poker operators are having to attract casual players who are not as profitable as the hard core and that is changing the economics of the business."

The group announced the launch of a casino game for mobile phones, which allows players to download its Starluck Casino games to their handsets in minutes.

PartyGaming said it was confident of making further progress in growing its international revenues in the second half due to a detailed programme of international advertising campaigns.

It said it was planning to launch a multi-lingual and multi-currency option during the second half of 2006 in a bid to broaden its international appeal.