Party Gaming Profit Warning Share Decline
Published: Wednesday, May 02, 2007 Online-Casinos.com
PROFIT WARNING FROM PARTY GAMING SENDS SHARES INTO DECLINE
Shares dip 9.2 percent on bad news
UK-listed online gambling group Party Gaming, often viewed as a bellwether stock, declined 9.2 percent this week on the company's publication of a profit warning in its quarterly results. The announcement warns that Party Gaming expects to miss its profit forecast for 2007, due to higher than expected player recruitment costs.
The group's earnings before interest, tax, depreciation and amortisation are now expected to be "significantly" below City expectations of $137 million (GBP 68.8 million) this year. The company still expects to meet revenue forecasts of $458 million.
The fall may have influenced other online gambling stocks, with 888 down 2.9 percent and Sportingbet 4 percent lower.
Party said its focus on rebuilding player liquidity after the US debacle last October had resulted in higher numbers of players, but had also resulted in lower average yields per player. The added costs combined with lower revenues per player were now expected to represent between 43 percent and 45 percent of group revenue, a rise of between 4 percent and 5 percent on expected forecasts.
New sign-ups, mostly from Europe, more than doubled to 233 900 in the first quarter. Around half the new players are from affiliate sites to which PartyGaming pays an upfront fee, a share of revenues or a combination of the two. The number of active player days more than doubled to 7.1million, indicating that its customers are visiting the site more often.
Group revenues for the quarter rose 26 percent to US$94.8 million, from US$75.3 million on Q4 2006.
New real money sign-ups went up 117 percent higher than Q4 2006 and average net daily poker revenue was US$750 900 compared with US$632 000 on the previous quarter. However, yield per active player day dropped a significant 12 percent to US$11.4, due to increased activity in Party Casino.com, where the more casual nature of players recruited did not offset the loss of high value players to poker sites that have kept on taking US bets despite the ban on US financial transactions with online gambling sites.
Party Gaming commented on the sites that continued to take US action, saying: "However, we believe that as payment solutions continue to close down, these sites will find it increasingly difficult to operate in contravention of US law."
PartyCasino benefited from the cross-sell to the high numbers of poker players recruited during the period, with daily net casino revenue averaging US$248 900 in Q1 2007, compared with US$180 100 in the previous quarter.
Taking a positive view, Party's chief executive Mitch Garber stressed that the rise in new players would benefit the group in the future and it should beat analysts' profit estimate of $160 million next year.
"While this front-loading of marketing expense will affect our profit performance in the short term, I believe that the prospects for the longer term will be materially enhanced, particularly as we move towards a more even playing field with competitor sites who continue to take bets from US players," Garber said.
