888 Holdings Profits Fall by 68% to $18.8M in 2017

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Thursday, March 22nd, 2018 | Written by Adam Brown

888 Holdings has released its results for 2017, and while the company managed to achieve record revenues for the 12 month period ending December 31st, its pre-tax profits plunged by a dramatic 68% to just $18.8 million.

Revenue Up 4%

888 Holdings generated revenues of $541.8 million in 2017, up by 4% compared to the $520.8 million collected in the previous year, and marking a new all-time high for the operator. Excluding the UK, whose revenues fell by 9% last year, 888 Holdings saw its revenues soar by 26% in all other regulated markets, with business returning year-on-year growth in each quarter of the year. The money it derived from regulated markets amounted to 70% of group revenue in 2017, and commenting upon the current situation, Chief Executive Itai Frieberger stated:

“The group’s growth was driven by further expansion in casino, sport and across regulated markets. This very robust outcome was achieved despite the group’s withdrawal from certain markets during the year and demonstrates 888’s resilience and agility.”

Profits Drop by 68%

Last year, the online bookmaker’s pretax profits fell by a staggering 68% to $18.8 million from the $59.2 million collected in 2016. One of the main reasons its profits plunging so dramatically was because of exceptional charges, including a tax bill that it may receive from Germany after a court ruling forbade online gambling in certain regions of the country. As a result, Frieberger said $45.3 million would be set aside in order to settle any potential taxation issues with unregulated markets, with the company’s profit woes further impacted by 888 Holdings having been hit with record fines of £7.8 million from the UK Gambling Commission for failing to protect its vulnerable customers.

Poker and Sports Betting

The Group saw its sport betting revenue increase by an impressive 45% last year, with Spain accounting for more than 12% of the company’s revenue, primarily from its casino and sports verticals. Encouragingly, its sport betting revenue is also currently trading 6% higher than the same period of time in 2017.

Poker also continues to be an important part of the company’s product offering, and in January of last year 888poker.it launch in Italy. Nevertheless, 888 Holdings saw its online poker revenues decline by 7.7% to $77.9 million in 2017 from the $84.4 million collected in 2016, with the contraction mostly attributed to its exit from grey markets “in line with the group’s strategic focus on operating in sustainable regulated markets.”

Market Withdrawals

888 Holdings withdrew from a number of lucrative grey markets in 2017, including Australia, with the latest country it is considering quitting being Germany after a court ruling forbade it from operating in the country.

Last year, the German Federal Administrative Court told 888 to stop offering its online betting, casino and poker products in the state of Baden Württemberg. However, Itai Frieberger said that more time would be needed in order to fully assess the impact of the court decision, with the help of local counsel being used to help reach a decision as to whether or not it was worth challenge the ruling. Elaborating further, Brian Mattingley, 888 chairman, explained:

“The company is highly disappointed by this far-reaching ruling and, together with the Group’s legal counsel, is considering potential courses of action, which may include a petition to the German Federal Constitutional Court and is assessing the status and breadth of its offerings in the German market.”

In Germany, it has been left up to the 16 individual federal states to decide whether or not to allow online gambling regulation, but so far just Schleswig-Holstein has issued licenses to any online gambling companies.

While Peel Hunt analyst Ivor Jones has predicted that the company’s possible exit from Germany would to be counteracted by solid growth in regulated markets, analysts at Regulus Partners, on the other hand, have warned that 888 is increasingly becoming weighed down by regulatory battles, stating:

“888 has achieved high single-digit underlying growth in a double-digit growth market.”

Looking Ahead

After its annual results were declared on Tuesday, shares in the company fell by 6.4% to 276.80 pence, and on Wednesday fell by a further 5.6% to 270.6 pence, giving 888 a market capitalization of £975.11 million. Laying out its expectations going forwards, Frieberger said:

“Above all, 888‘s focus in 2018 and beyond will, as ever, remain on delivering a truly satisfying and safe experience for customers, thereby supporting strong and sustainable growth for our shareholders.”

The Group further highlighted that “significant growth opportunities” lay ahead, with the Board confident that the firm’s resilience, diversified product range, and scalable proprietary technology would enable it to achieve yet “another year of operational progress.”