It seems like only yesterday that Partygaming was front-page news. Partygaming exploded onto the market, and quickly became part of the FTSE 100 index. Many believed that Partygaming, and a slew of smaller companies that followed behind it, were just a flash in the pan, and regarded investors' seemingly insatiable appetite for the stock as a sign that the stock market was entering a mini version of the Internet bubble that occurred only a few years earlier. By and large, the sceptics turned out to be right.
The Partygaming of today is still in no longer part of the FTSE 100 but is part of the FTSE 250, and is only a fraction of the size it was at its height in 2005 when the company's share price peaked at approximately 175 pence. Today, Partygaming appears to be building a new upward trend, but from lows hit in recent months at 25 pence. The dagger in the Partygaming's back was stuck there by the US Congress, which had a particular beef with online gambling. You can gamble yourself into oblivion in Las Vegas or Atlantic City, but don't even think about trying to do it from the comfort of your home!
Partygaming had managed to achieve such a huge valuation on listing because it was experiencing explosive growth in gambling over the Internet, particularly in poker, backgammon and blackjack. This growth was fuelled by players in the United States - at one point, U.S. based punters represented about 75% of the company's revenue stream. So when the US Congress passed the Unlawful Internet Gambling Enforcement Act in October 2006 PartyGaming pulled out of the US market and the company's share price dropped 60%.
A year on, however, and despite many smaller players imploding, Partygaming has survived. Third Quarter Key Performance Indicators (KPI's) and a Trading Update brought a glimmer of hope to what has otherwise been a sector that has destroyed considerable shareholder wealth. Group Revenues increased 24% to US$115.7 million on the year before, and up 5% on the previous quarter this year. Poker Revenues slipped 3% to US$74.8 million on the previous year, but Casino Revenues leapt 158% to US$36.7 million and Sports Betting, a new foray, was up 91% to US$4.2 million.
The other key metrics for gambling companies are the number of new players signing up, the overall number of active players in the system and the yield they generate. New player sign ups fell in the third quarter by 14%, but Partygaming attributed this to the summer being its quiet period, and despite the fall, new signings were still up 44% on the same 9 month period in 2006. Yields per active player, per day, slipped 14% versus the previous year, reflecting the continuing repercussions of the withdrawal of many high value players from the US. But Partygaming's biggest revenue generator, Poker, saw a 10% increase in yield on the previous quarter to US$13.20 million, which was the result of operational changes introduced. Partygaming stated that its market share in the online poker sector had remained steady at 12.3%. Finally, Partygaming stated that in the three weeks to 21st October 2007, average gross daily revenue increased by 9% to US$1.593 million and new sign-ups averaged over 1,300 per day.
This was enough to push the shares up 10% to 30 pence, as the market continued to see a slower, but albeit progressive growth in the group's range of online gambling services post the US Gambling Act. So, despite the major setback in the United States, Partygaming is still a very cash generative business that has adapted to life without the largest gambling market in the world. The racy multiples and lofty valuations of 2005 may be gone, but in their place is still a profitable business model ? barring anymore unforeseen regulations!