Bwin.Party Outlines Strategy To Offset Losses

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Monday, September 1st, 2014 | Written by Charles Washington

Following its disappointing H1 interim results, bwin.party shares are now lower by a third this year with the company’s market capitalization value having fallen to around £741.18 million. As a result, bwin.party Chief Executive Norbert Teufelberger and company Chairman Philip Yea have now outlined a wide ranging restructuring of the business designed to aid the operator’s recovery.

“We are simplifying our structure to accelerate the execution of our plans to drive revenue growth, increase our focus on customers in nationally regulated and/or taxed markets, and further reduce infrastructure costs,” explained Teufelberger.

Revenue fall 7% in H1 2014

For the opening six months of 2014 ending 31st June, bwin.party reported a 7% decline in revenues to €317.1 million, down from the €342.5 million generated over the same period last year.

The company’s results were a mixed bag, and while sports betting revenues were up by 7% to €127.4 million compared to the €119 million in H1 2013, all other verticals were down. These included online casino and games division revenues falling by 8% to €103.3 million from €112.2 million in H1 2013, and bwin’s online poker division reporting a 31% decline in revenue to €44.1 million ($57.9 million) from €63.9 million ($83.9 million) in 2013.

Online poker decline

Unfortunately, bwin.party’s forage into the USA’s nascent iPoker industry has failed to stem the tide of an overall decline in its poker division, and as a company statement, explained:

“Operations in New Jersey are attributed to a good deal of the losses in bwin’s financial statement, yet poker is the most under performing aspect for the company. The number of active players and daily average players are down 11 percent. New player sign-ups are also down by 4 percent. bwin’s other operations, such as sports betting, bingo and casino games, took less of a hit.”

In addition to incurring €7.3 million of operating losses in New Jersey, the withdrawal of its poker product from grey listed markets such as Greece, together with more stringent regulatory environment in a number of other markets further impacted bwin.party’s bottom line.

Increased competition in the USA

Compounding bwin.party’s problems further is a potential increase in competition to its USA operation after Amaya Gaming acquired the Rational Group, owner of rival PokerStars, for $4.9 billion recently. As a result, the company said it intends to develop its Bwin brand in Europe, while also focusing on its partypoker product in the United States. A company statement even went so far as to suggest bwin.party should consider playing an active role in reshaping the future of the US iGaming industry, fueling speculation of a break up of the company. As an article by Daniel Coatsworth on sharesmagazine.co.uk, considers:

“There’s a strong case to break up the company.. the American operation could be an easy way for an acquirer to exploit this exciting opportunity. The technology platform may also interest a rival online gambling company.. as could its brands in low regulatory risk markets. Assets include the Kalixa unit.. and there’s a sports media rights business and a social gambling operation.”

Simplifying its business structure

Since PartyGaming and Bwin Interactive Entertainment merged on March 2011, the company has suffered a number of setbacks, including an introduction of a German sports betting turnover tax in 2013, and having its websites blocked in Greece and Belgium.

Amongst the series of measures announced to help reduce costs and improve its business, Teufelberger has said bwin.party senior management has been restructured to encourage fresh ideas on how to operate in saturated regulated markets. In addition, the company is set to streamline its product range and workforce to cut costs by around €15 million ($19.7 million) in 2015, while introducing new investment plans to stimulate company growth, including disposing of company assets to raise a further €40 million ($52.5 million).

“Hold” Rating for Bwin.party

Bwin.party shares are currently trading at 90.45p, down from a 52 week high of 135.50p, but an improvement on its 52 week low of 79.00p. The company has also announced stockholders will be paid a dividend of GBX 1.89 ($0.03) per share, representing a yield of 2.08%.

Following Bwin.party’s H1 results, a number of analysts have recommended a hold rating on company shares, whilst today Deutsche Bank actually upgraded Bwin.party shares to a buy rating of GBX 121 ($2.01) price target, although for Numis Securities Ltd its buy rating on shares was elevated to GBX 200 ($3.32).