An article written by David Stevenson in UK publication Motley Fool this week takes a cautiously optimistic view of online gambling stocks, a year after the UIGEA (Unlawful Internet Gambling Enforcement Act) banned online gambling in the United States.
David Stevenson asks the question, “Are the online operators now coming up trumps?”
The article examines the negative impact to UK companies of the UIGEA, which resulted in the withdrawal of the US market of the online gaming businesses.
However, Stevenson writes that the online gambling firms had to re-invent themselves as a consequence of the loss of the US market. 888 Holdings, one such company affected by the UIGEA, has however had a 37 percent increase in revenues in the third-quarter of this year. This has been attributed to new promotions and poor summer weather with more people staying in to gamble.
888 have re-invented themselves by launching an Italian sportsbook and are focusing on revenue-sharing deals in Latin America, Eastern Europe and Asia. Its online bingo site has also doubled its profits in a year.
Stevenson backs up his point by writing that PartyGaming has also seen its third-quarter revenue increase, this time by 24 percent.
PartyGaming are confident about the group’s future as they have said, “for the full year and beyond.”
David Stevenson also includes Sportingbet in his argument which has been the worse hit of the big three online gambling firms in terms of share price. Recently the group has announced a two-thirds increase in gross European profits in the year to July. It has also increased its share of the gross win - the money the company takes from the gambler - by 48 percent and the amount of customers has gone up by 14 percent.
Sportingbet have however experienced a pre-tax loss of £312 million due to the UIGEA, as turnover has fallen by 35 percent to £1.3 billion but they do seem to be on the way up again.
Sportingbet has seen trading significantly higher than last year in line with management expectations and the group is expanding in the European market in countries such as Turkey and Italy.
Stevenson however wasn’t completely optimistic about the state of the online gambling industry. He said companies need to set up in new markets and not all new ventures will succeed.
Stevenson also argues the online gaming market is tough. The search for new players will become increasingly hard. At some point, growth will top out and an economic recession will affect the online gaming industry just like other industries.
Stevenson though continues his cautious optimism by writing, “But after huge relative under-performance against the FTA All Share Index, ranging between 44 percent for 888 to 73 percent for PartyGaming and 86 percent for Sportingbet, a recovery may be on the cards. Greater confidence about future prospects is reflected in PER multiples of between 10 and 14 times prospective earnings. And some ‘industry consolidation’ i.e. a bit of takeover activity, wouldn’t do share prices any harm either.”
“For those who like a bit of a risk it could be worth a wager.”
