Analyst: Amaya More Media Company Than Online Casino

Given its titanic user base, industry leading platforms and strong user engagement models, Amaya Gaming may have more in common with the largest B2C Internet companies in the world than an online gambling business.

That’s one of the central themes of Macquarie Research’s coverage initiation for Amaya, titled “Amaya: Sitting at the big boy table.”

Amaya: The best of both worlds

Macquarie (correctly) notes that Amaya is one of the “few B2C platforms that have both content scale and liquidity,” well positioning it to succeed in iGaming verticals that hinge on liquidity, like poker, and those that drive traffic through content diversification, such as casino.

Yes, at present the only vertical in which Amaya has a stranglehold is online poker, of which it’s two brands – PokerStars and Full Tilt – account for 66% of regulated market share.

That may be in process of changing, as the company has begun rapidly expanding into new territories:

• Full Tilt launched casino in Q1 2014, and expanded into table games the following quarter.
• PokerStars followed with a broad rollout of casino games in early 2015.
• The beta version of Amaya’s sportsbook launched on PokerStars in select markets in April 2015.
• Amaya is prepping to enter the daily fantasy sports realm by the onset of the 2015 NFL season.

As per Macquarie, should Amaya capture 3-5% market share of casino and sportsbook, it will nearly double revenue and grow EBITDA close to a $1 billion by 2018.

Yet, Amaya may be poised for even more substantial growth, as its exceedingly large database grants it a distinct competitive edge.

Macquarie alludes to several of the advantages afforded by Amaya’s sheer size in its report:

• The high cost of regulation is encouraging consolidation. In short, the rich (Amaya) are getting richer – or if not richer than at least acquiring more players.
• Along the same lines, if Amaya becomes a one-stop shop for all iGaming needs, then it will “squeeze out” the competition, in turn strengthening its own position.
• Macquarie states that “players prefer a shared wallet and shared loyalty system.” Hard to argue.

As to the final point: At present, approximately 50% of PokerStars players utilize other platforms to participate in casino/sportsbook, per data provided by Amaya.

Amaya’s entry into these spheres will undoubtedly shrink those numbers, perhaps dramatically.

Is Amaya more like Facebook than an iGaming company?

Macquarie’s theory that Amaya should be compared to user driven Internet companies is an interesting one, and given Amaya’s comparable size to Instagram, Zynga and Netflix, one that is certainly not without merit.

Yet, Amaya’s ability to distinguish itself more as what Macquarie refers to as a “global leveragable platform” may hinge on a few yet-to-be-answered questions:

• Will Amaya’s online poker traffic drive cross-sell into other iGaming verticals? The answer to this is almost certainly “yes.”
• Will Amaya’s user database grow at an accelerated clip? This may depend greatly on the company’s ability to expand into the US and Asia/Pacific markets.
• Does the company delve into non-gaming businesses, and further into social gaming? There are indications that this will occur, but it remains a bit of a question mark.

In either case, Macquarie notes that Amaya’s valuation compared to B2C Internet companies is inexpensive and if the company traded at industry averages “of 6x P/S or 24x EV/EBITDA” then the stock could trade “30 – 100% higher.”

Eilers and Macquarie offer differing opinions on Amaya’s growth prospects

Whereas Macquarie sees Amaya’s online poker revenues growing by 5% over the next three years, Eilers Research, in its “Initiating coverage on Amaya, Inc.“ only has revenue increasing by 1-2% in 2015-16 before dipping slightly in 2017.

Reaching further, Eilers places total Amaya revenue for 2016 at $1.721 billion (CAD) verses $1.791 billion for Macquarie.

Eilers suggests that its conservative estimates are a reflection of a shrinking online poker market, Amaya’s uncertain future in so-called “grey markets” and possible brand dilution as a result of introducing new iGaming verticals.

On the other hand, Macquarie’s sees online poker market growing at a clip of approximately 10% per year, primarily driven by mobile and increased regulation in the US. Its outlook regarding casino/sportsbook is also weighted toward optimism.

Regarding Amaya’s online poker growth prospects, I tend to side with Eilers, as there is little indication that the online poker industry is in the midst of a turnaround.

• In H1 2015 alone global online cash game traffic dipped 22.4%. While seasonal trends had something to do with the falloff, the plunge was greater than in years past.
• Furthermore, there has been little movement on the US regulatory front, with Pennsylvania being the only state with a realistic chance of going live with an online gambling operation by 2016.

That said, there is still little reason to believe that PokerStars/Full Tilt won’t carve out a significant presence in the casino/sportsbook arenas, which may prove more lucrative than doubling the size of their poker arm over the next five years.

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