Has Youbet.com Turned the Corner?

Fueled by news that it has just completed the most successful year in its history, Youbet.com, the online race wagering company, saw its stock close at a 52 week high ($2.48 a share) on Tuesday.

In terms of revenue, the final quarter of 2002 was the most successful fourth quarter ever for Youbet.com. During the fiscal period, the company posted record revenues of $9.1 million, marking its first quarter of positive operating cash flow since its inception.

The record revenue was revealed in an unqualified audit opinion, which included year-end figures, completed 11 weeks after the company released its own fourth-quarter and year-end figures. First-quarter 2003 figures are expected by the end of this month.

Chief executive Charles Champion is hopeful the news signifies a bright future. Emerging from a difficult period, during which the company's lowest point may have been warnings of a delisting, Youbet, he said, appears to be heading in the right direction.

Nevertheless, he stressed that the company won't stand pat.

"Our record results for the fourth quarter mark the successful culmination of a 12-month process to restructure Youbet.com and position the company for future growth," Champion explained. "All of our operations contributed to the successful year and we feel confident that our team can exceed this performance in 2003, as we realize the payback from our marketing initiatives, expanded content, better focus on handle yield and aggressive cost cutting."

Champion was brought on board seven months ago as part of a new management team headed by David Marshall, a co-founder of the company. Marshall returned to the company in March 2002 with the goal of making it a profitable operation. In September, he stepped down as CEO and turned the job over to Champion.

Youbet.com claims to be the largest Internet provider of thoroughbred, quarter horse and harness racing content in the United States. Members can watch and, in most U.S. states, wager on virtually 100 percent of all major domestic horse races using the company's proprietary closed-loop network. Features of the service include commingled track pools, live audio/video, up-to-the minute track information, real-time wagering information, phone wagering and value-added handicapping products.

The company's recent success was due in large part to its continued growth as a licensed operator in California, coupled with an aggressive, extensive marketing campaign.

Youbet.com has strategic relationships with TVG, an indirect subsidiary of Gemstar-TV Guide International, Inc. and MEC Pennsylvania Racing, part of Magna Entertainment Corp. The three groups respectively are the only operators licensed in California to conduct "advanced-deposit wagering" under an account wagering law that went into effect at the beginning of 2002.

Youbet.com is also the official online wagering platform of Churchill Downs Incorporated and the Kentucky Derby. The group additionally operates TotalAccessTM, an Oregon-based hub for the acceptance and placement of wagers.

In addition to breaking revenue records, Youbet.com significantly narrowed its quarterly losses. The company reported a net loss of $1.4 million, equal to 2 cents a share, down from a net loss of $5.5 million, or 28 cents in the comparable period a year ago.

Youbet's fourth-quarter 2002 handle was $50 million, compared with $19.8 million in 2001.

Investors responded to the news positively, trading the stock's price up to $2.48 per share at the close of trading on Tuesday--a 9.3 percent increase from the previous 52-week high of $2.27 per share and a 15.3 percent increase from Monday's close of $2.15 per share.

Youbet.com's stock has increased steadily since February 2002, when the company announced its first-ever positive cash flow.