Seasonality Rebounds, Forex Movements Concern Analysts

As many companies prepare to release third-quarter results, some of I-gaming’s biggest names have been downgraded by brokerages in recent weeks.

After relaunching its poker platform approximately a month ago, PartyGaming saw a marked increase in traffic – average players were up from 4,000 to 5,000 -- on reinvigorated marketing, bonus spend and seasonality.

Analysts suggest, though, that because the majority of Party’s business derives from poker, the company remains exposed to both slowing secular growth and market-share gains by America-facing operators like PokerStars and Full Tilt.

In a research note earlier this month, Ivor Jones of Evolution Securities said that Party will very likely collaborate with poker industry competitors to stabilize its share of the market.

“We are not sure what form this will take but we are sure it is coming,” Mr. Jones said. “European companies need to collaborate to overcome US-facing competition and thrive.”

With regard to the company’s casino business, it recently brought on Jon Salmon of Intercasino as chief marketing officer. Hopes are high for Mr. Salmon, Mr. Jones said, as PartyCasino is growing but yield per active player remains well off of 32Red, 888 Holdings and Ladbrokes.

Evolution has reduced its forecasts on slower than anticipated revenue growth during the first half and a decline in poker activity prior to late September. Earnings before interest, taxes, depreciation and amortization are now expected to come in at $141 million from $154 million.

GigaMedia Ltd., the Taiwan operator and software developer, has also seen its shares rocked in recent weeks despite management reassurance that fourth-quarter revenue has rebounded from seasonality.

During the third quarter, forex movements negatively impacted the company, with the United States dollar gaining against the Euro and Tawain dollar. Poker, the company’s core business, was also slow to rebound in September, according to research from Roth Capital Partners.

Like many of its peers, GigaMedia has undertaken to integrate a one-wallet solution into its casino and poker platform, work on which is expected to wrap up in the fourth quarter.

Todd Eilers of Roth Capital also suggested the imminent launch of online sports betting presents a significant growth and cross-selling opportunity, as roughly half of the company’s 200,000 poker players are thought to bet on sports.

Although management has projected margins of between 20 percent and 25 percent, Roth Capital has reduced its full-yearly revenue forecast to $206.5 million from $222.2 million.

Forecasts for 888 Holdings were also downgraded yesterday by analysts at Daniel Stewart & Co.

While the viability of these companies’ business models has not been challenged, the question does arise as to which sector leaders will weather the downturn.

“The survivors will be those that have the largest number of customers and who are not carrying disproportionate debt on their balance sheets,” Warwick Bartlett, the owner of Global Betting and Gaming Consultants, told IGamingNews in an e-mail. “I like Poker Stars, Playtech, Microgaming, Bet 365, Ladbrokes and William Hill (after re-financing their debt).”