A little bit of light reading for those of you who like to trade shares…
Party Poker - Dying on its feet or a giant on the rebound?
The release back in April of Q1 KPI’s for the PartyGaming group have not gone unnoticed by industry analysts. Net Revenue for their poker product is down 34% from the same period as last year, leaving some share holders concerned at the impact that this is going to have on the group’s 2009 financial performance. With Q2 figures due to be released in the next couple of weeks, now is a great time to revisit Q1’s numbers for Party Poker - the group’s flagship product.
Party Gaming has been under the stewardship of Jim Ryan since the middle of last year, and it’s clear reading PartyGaming’s 2008 Financial Statements that their poker product has suffered considerably at the hands of their competitors, (namely Poker Stars and Full Tilt) who have continued to accept wagers from US based players, and who, according to Ryan, have aggressively used the profits from these operations to drive up competition in existing and emerging markets.
Ryan certainly has a valid point here. These operators have picked up easy winnings post UIGEA in the American market (which according to the Economist has 60/80m of the worlds estimated 160m poker players). Statistics provided in PartyGaming’s 2009 Annual Report show that Poker Stars and Full Tilt between them are dominating the poker market, holding an estimated 53% of the market share, way ahead of Party Poker’s 8% share.
Whilst it’s clear PartyGaming are no longer a ‘one trick pony’, and now offer a range of gaming products, their poker brand is still the primary revenue stream, accounting for as much as 64% of Net Revenue in 2008. Consequently the alarming numbers shown in Q1’s KPI’s are a concern for any investor.
Q1 2009 KPI’s - PartyGaming
Net Poker Revenue for Q1 2009 has come in at $52.6m down 34% on the same period as last year. Whilst this is a concern, what is particularly worrying is the gradual erosion of poker revenues throughout 2008. We are seeing declining revenues quarter after quarter and the trend has continued into 2009.
PartyGaming’s Annual Report makes it clear there were 5 primary reasons for the fall in net poker revenue in 2008:
- Increased competition from US facing sites
- The delay in the launch of the Groups loyalty program
- The cannibalization of Poker revenues by the Casino product (over 77% of casino players were active poker players).
- Player frequency - in other words players playing less often.
- Customer attrition rates - in 2008 24% players active after 6 months of registration compared to 27% in 2007.
How are PartyGaming planning to turn this around?
Reading between the lines it’s apparent that Party Poker were planning on reversing this trend with the re-launch of their new poker platform (which occurred late in Q3 2008) as well as the introduction of their new loyalty program.
However, Q1’s Net Poker Revenue figures indicate that to date, neither of these factors have had the desired impact and the release of Q2 KPI’s in the next few weeks should certainly make interesting reading and give more of an indication as to the impact these two factors are having on the financials. Recent events in the US, where the FBI have seized $30m worth of funds from payment processors who acted on behalf of Full Tilt and Poker Stars should certainly improve Party Poker’s market position, leaving them to capitalize on the uncertainty this has created with non-US based poker players who are concerned with the security of their playing funds. However, given that this has only recently occurred, it’s unlikely to have much impact on the Q2 KPI’s.
If Q2’s KPI’s show another drop in Net Poker revenue, investors should certainly be concerned. However, not all is lost as recent FBI activity has meant that Poker Stars and Full Tilt have been dealt a blow which is likely to impede their ability to continue to aggressively market in new non-US based markets - those same markets that Jim Ryan and his Party Gaming team are trying to exploit. This may well be a case of “what goes around come around”.
This entry was written by Nena on Wednesday, July 1st, 2009 at 7:18 am and is filed under Blog.
