Blackjack Lifts PartyGaming in Q4

PartyGaming Plc (PRTY.L) released a trading update last week in which it reported key performance indicators for the fourth quarter of 2005. The company continues to impress, revealing that a record number of new players logged onto PartyPoker during the quarter, while casino revenue increased by over 600 percent thanks to a new platform that facilitates the cross-selling of blackjack to poker players. Overall group revenue for the quarter reached US$320.3 million--a 65 percent improvement over the fourth quarter of 2004.

"Through effective cross-selling to our large customer base we are well on the way to creating the world's largest online casino." - Richard Segal PartyGaming

One-third of the 229,277 new player signups during the fourth quarter came from outside the United States, indicating some success toward meeting the company's goal of broadening its customer base internationally. The surge brought the total number of real-money signups for the year up to 839,317--well ahead of the targeted 800,000. Net poker revenue for the quarter reached $233.7 million, an increase of 31 percent compared to Q4 2004 and of 17 percent compared to Q3 2005.

A huge part of the company's success in the quarter came as a result of its ability to cross-sell blackjack to PartyPoker players following the launch of a new platform on Oct. 8. During the quarter, 44 percent of active PartyPoker utilized the ability to easily play blackjack games, and PartyGaming's net casino revenues soared to $82.3 million, compared to just $11 million in the previous quarter and $10.6 million in Q4 2004.

"The success of blackjack has transformed our casino business and proved very popular with a large number of our poker players," PartyGaming CEO Richard Segal explained. "Our scale has again proved commercially important. Through effective cross-selling to our large customer base we are well on the way to creating the world's largest online casino."

Constant expansion is no doubt part of the PartyGaming plan. In addition to more new products and the consequent cross-selling opportunities, the company is making its services available in multiple currencies and languages, which should help it attract even more non-U.S. players.

Segal explained, "PartyGaming's next major milestone will be the launch of the fully-integrated platform and shared purse in the first half of 2006. We will also launch two new games, one the in the first half and another in the second half of 2006. By the end of 2006, we will up the ante again by launching a multi-lingual and multi-currency offering. Marketing a wide range of quality games to an increasingly international customer base is a core part of our strategy that we believe will deliver attractive returns for our shareholders."

Fueled by the record number of new customers and the new blackjack offering on the PartyPoker platform, revenue at PartyGaming improved by 65 percent compared to the corresponding period last year to reach $320.3 million. Most analyst forecasts expected the company to report only about $300 million.

PartyGaming's house broker, Dresdner Kleinwort Wasserstein (DrKW), has upgraded its 2005 forecasts by 1.8 percent and its 2006 EPS forecast by 2.9 percent to USc15.5. DrKW also expects PartyGaming to obtain 30 percent year-on-year growth for the first half of 2006. The brokerage firm has left its rating of PartyGaming stock at "buy" and has lifted its target price 10p to 175p. PartyGaming's current stock price is 131.75p. The share price has fallen off slightly after opening just above 150 last Friday, likely as a result of profit taking.

Last week also saw an optimistic trading update from PartyGaming rival Empire Online Limited (EOL.L), which expects to report over $50 million in profits for the year 2005. The company's EmpirePoker business was badly hurt by PartyGaming's decision to segregate its own poker players from those of its skins partners in October. Despite the setback, Empire Online gained 49,788 new players during the fourth quarter through focusing its marketing efforts on its Club Dice and Noble Poker operations. Empire's net gaming revenue of $22.5 million for the fourth quarter of 2005 is a slight improvement over Q4 2004's $22 million but a decline from Q3 2005's $31.3 million. Empire Online is challenging PartyGaming through the court system of Gibraltar, arguing that the segregation of PartyPoker's skin clients represents a breach of contract.

PartyGaming commented on the litigation in its trading update, stating, "Such proceedings are likely to be protracted and involve claims for substantial damages. Whilst an amicable resolution to this dispute would be preferable, PartyGaming will vigorously defend the proceedings. Although there is some uncertainty with any litigation, PartyGaming is confident of achieving a successful outcome."

PartyGaming's full-year report for 2005 is set for release on Feb. 28, 2006.

Click here to view PartyGaming Plc's Fourth Quarter Key Performance Indicators and Trading Update.