Canada’s Amaya Gaming says its online casino vertical increased its share of overall revenue in the third quarter but the company’s shares fell nearly one-third after it slashed its full-year earnings guidance and pumped the brakes on its sports betting ambitions.
In the three months ending Sept. 30, Amaya said revenue rose 8% to C$325m (US $244.5m), of which 14% came via the casino vertical, up from 11% in Q2 and 6% in Q1. Adjusted earnings rose 8% to $141m, while adjusted net earnings rose 13% to $91m as margins were basically unchanged at 43.5%.
Slipping on its rose-colored glasses, Amaya said online poker revenue was up 4.5% and overall revenue was up 19%, provided you viewed things on a constant currency basis and discounted a number of significant market forces. These included $5m in new value added taxes in some European Union markets, the forced exit of Amaya’s PokerStars and Full Tilt brands from Portugal and other markets, plus the imposition of capital controls in Greece.
But CEO David Baazov said the strengthening of the US dollar relative to the Euro and other currencies had resulted in a 19% decline in the purchasing power of its customer base. This has had a “significant negative impact” on revenue, “higher than we previously anticipated.”
Amaya has therefore cut its full-year revenue expectation from a range of $1.45b – $1.56b to a range of $1.29b – $1.34b, while earnings have been cut to $552m – $572m from the previous range of $600m – $650m.
Amaya added 1.85m customers during the quarter, with total registrations rising 9% year-on-year to 97m. But unique real-money customers fell 3% to 2.2m, which the company blamed on to the aforementioned market exits. Around 94% of all Amaya’s players were active on PokerStars.
Since officially assuming control of the Rational Group’s operations in August 2014, Amaya says it has cut its long-term debt by over half-a-billion dollars to $2.6b and cut its annual interest expenses by $62m.
Amaya said it would delay the rollout of “significant aspects” of its new sportsbook operations in order to “enhance the consumer product experience and complete the product offering.” Amaya said it expects to fill in the ‘gaps’ in its sportsbook offering by the end of H1 2016, although cautioned that this timeline wasn’t set in stone.
Amaya’s current sportsbook offering enjoyed less than 100k real-money active unique customers in Q3. Turnover rose 180% from the start of !3 to the end (albeit from a “very small” base) and the company posted an 8% hold, although the vertical’s revenues were “negligible” due to heavy bonus offerings, particularly in the ultra-competitive UK market.
The Toronto-listed Amaya has previously stated that it would pursue a secondary listing in New York and said Tuesday it would file papers with the US Securities and Exchange Commission (SEC) to allow share offerings of up to $3b over a 25-month period.
Given the fact that acquisitions are an inherent part of Amaya’s DNA, the company may well be planning to use some of that $3b to acquire an established sports betting platform. Given the industry’s ongoing merger and acquisition mindset, any number of established European sports betting operators could find themselves in Amaya’s big-spending crosshairs.
Baazov played coy with the company’s plans, saying there were no major acquisitions in the pipeline. Baazov said the NASDAQ listing was a condition of its debt obligations to its hedge fund lenders and called the $3b shelf an unremarkable sum for a company of Amaya’s size.
NEW JERSEY PLANS
Amaya offered a typically vague update on PokerStars’ launch timeline in New Jersey’s regulated online gambling market. Amaya received formal approval last month to launch its Stars and Tilt brands in New Jersey, and Amaya says the launch will take place sometime in H1 2016.
On the call with analysts, Amaya revealed that the New Jersey application process had been a major distraction that demanded a lot of its resource allocation in Q3. The license process cost Amaya $2m, while the termination of certain employees as ordered by the New Jersey Division of Gaming Enforcement added $3m to Q3’s expenses.
Amaya’s filing said it received some kind of new license approval in Quebec during the quarter, but Baazov offered no further insights during the call. The Canadian province, which Amaya calls home, has been publicly musing about issuing licenses to private online gambling operators that would offer a level of competition to Espacejeux.com, the online gambling site run by the state-owned Loto-Quebec provincial gambling monopoly.
In September, Baazov told the MBA Association of Quebec that he was looking forward to “hopefully” becoming an “accredited provider of online gaming services to Loto-Quebec,” opening up the possibility that Amaya could end up essentially supplanting Espacejeux.com.
Baazov said Amaya’s brands had demonstrated that they were the market leader “not only in size but also in terms of game integrity, player fund protection and responsible gaming.” Baazov said handing such an operator the keys to the kingdom was “what a responsible leader should do.”
Amaya recently hired Luc Ouellet, managing partner of the Quebec City office of PR firm National, to lobby the Quebec government. In a previous life, Ouellet served as an advisor to several federal cabinet ministers, including the Justice portfolio.
Baazov said he had no crystal ball regarding the possibility of any US states joining Nevada, New Jersey and Delaware in regulating online gambling. Baazov said there were certain unnamed markets in which regulation was an “every year it’s next year” situation but Baazov said the overall trend was positive and predicted that in a few years, “nobody will bother to ask us this question.”
As for PokerStars’ important Russian market, Baazov said he believed the government would issue online poker licenses sometime in 2016. Baazov said dialogue was ongoing and he took heart in the government’s alleged view of poker as a “mind sport.”
Amaya revealed it paid $9m in back taxes in order to ensure its approval for a new online license in Romania. Baazov said the forced exit from certain European markets as countries liberalized their online regimes wasn’t necessarily a bad thing, as it allowed Amaya’s brands time to tinker and eventually re-enter these markets with a more expansive product range.
PokerStars online casino offering is now available in jurisdictions comprising 53% of real-money active unique users and around 300k customers played real-money casino in Q3. Baazov said the casino rollout had been slower than expected, having envisioned offering 250 different games by the end of Q3 but “technical surprises” had caught the company off guard. Baazov now expects a “robust” casino product on both mobile and web by the end of Q1 2016.
Amaya also said it was in the process of developing a “new poker variant targeting the larger and growing skilled video gaming community.”