Things are looking pretty good for Playtech and anyone who is lucky enough to have any kind of shareholding in the software company at the moment. Last week’s first quarter results showed that the company has already gone some way to building on their considerable 2012 success with gross income and total revenues both up by 16%. Revenues were up for casino, services and bingo while the 128% growth in sports revenues lays down an impressive statement that the Israeli-company won’t be shying away from that sector either.
The decrease in videobet revenues matters little given the relative size of that area while the poker revenue decrease is likely to be only a blip as more operators, namely Coral and Gala, continue to sign up to iPoker network. All the signs tend to suggest that this is just another step on Playtech’s rise to domination in the iGaming software market. As Microgaming continues to maintain its plateau, Playtech’s progress appears unbridled. With huge growth already taking place in the ‘it’ market of the moment – Asia –, a new deal in place with Ladbrokes and a beefed up poker network with more liquidity, Playtech are sitting pretty right now.
There’s also one other thing which will be drawing the attention of profit-seeking investors, or to be more accurate, 423,750,000 things. This mammoth amount secured by selling the 29% stake previously held by the company in William Hill Online is leaving severe burn marks on the pockets of Mor Weizer, CEO of Playtech. Weizer’s comments in the Q1 statement came as no particular surprise to anyone that had put any thought towards the topic of what Playtech were planning to do with this impressive windfall.
He said: “We are focused on exploring strategic alternatives that will enable us to continue the growth and development of the business.”
So with all this money in hand, where are the strategic alternatives that Playtech will be looking to place their pennies?
Highway to the USA
The use of the word alternatives may prove to be a bit misleading in the long run. Given Playtech’s current position of strength across most areas of the industry, there’s little that they want and don’t already have. One geographical market where their footprint is understandably small is in the USA. This was addressed by Weizer last week as he noted that new markets would be receiving significant attention from the software company.
“We are in certain discussions with various groups with regards to different types of partnerships in the US,” he told listeners on the analyst conference call.
It’s not rocket science to suggest that the most appealing partnership for Playtech is going to be some form of joint venture with a big Vegas casino company – although which one is a matter for debate. Their financial clout and the experience from William Hill Online will make them an ideal partner for the big brand casino companies so there are likely to be plenty of choices here. The Hills payout will also allow them to cover short term costs in order to acquire players on a huge scale. In addition, their experience in using offline brands to create positive online results is something that will stand them in excellent stead when the time comes to make hay in America.
This is bound to be seen as the more preferable route into the US for Playtech as the acquisition method applied by Amaya is unlikely to appeal. Acquiring of smaller companies, like Cadillac Jack for example, just isn’t going to bring in the level of immediate returns that Playtech will be looking for.
Sport is another area where there are clear growth possibilities. Playtech’s revenues for sport at the moment are at just €4.6 million which puts the sector some way behind the flagship casino activity, which is no surprise given the company’s beginnings. But now that they have the grounding and most certainly the means, bringing sports revenue inline with that of casino is a challenge likely to be taken on.
How their recent windfall will enable this is less certain. Here we may see an acquisition as tech companies that are creating sports betting platforms represent an ideal way to gain more sports betting market share for Playtech. The likes of OpenBet would be the ideal but whether they’d be prepared to put up quite that much capital upfront is another matter. The key here is going to be mobile. Given that mobile is the best way to reach casual customers – something that Playtech’s marketers are very good at doing – they’ll be looking for a product that can fulfil the promises made by their marketing communications.
As with their potential expansion into the US, a sizeable chunk of the WHO windfall will likely go towards spending big on affiliates. This was the strategy that was so successful in making Hills the market leader in this area and is currently taking place at Winner. Hills are reported to have affiliates on 80% rev share deals which has enabled them to create a huge player database, something that Playtech will be keen to replicate – if they haven’t managed to hold on to previously gained details.
Just the Beginning
The extension of the company’s contract with RAY – the Finnish operator – announced on the day following the release of Q1 results, will probably not be the most significant deal that Playtech makes this year. There are already rumours of a purchase of Sportech which would provide Playtech with more sporting brands in the form of The Football Pools and Vernons as well as a significant share of the lucrative fixed-odds betting terminals (FOBTs) market that we hear so much about in the UK.
Speculation regarding the target of Playtech’s desires is bound to be rife in the coming months, and rightly so. With their existing position and their potential for further growth and profits, the company’s share price increased by more than 30p last week. The chances are that that won’t be the last time that sentence is typed this year.