What Investors Will Be Listening For In Amaya's Q1 Results Call
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What To Look For In Amaya’s Q1 Results And Conference Call Next Week

Amaya Q1 2016 investor call preview
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Amaya’s first quarter financial results will be issued next Monday, May 16, after the close of trading. They will be followed by a conference call at 5:30 p.m. ET, hosted by interim CEO Rafi Ashkenazi.

The call will be the first for Ashkenazi since Chairman David Baazov stood down from his executive roles in the company.

A year ago, everything looked rosy for Amaya. David Baazov even said that he planned to double the company’s revenues from online poker within five years.

Since then, the share price has halved, and David Baazov stands accused of insider trading by the Quebec securities regulator, Autorité des Marchés Financiers.

Amaya needs a good news story to buck up its spirits, but will the Q1 results provide it? OPR takes a look at what investors will be looking for to restore their confidence.

New Jersey

The launch of PokerStars in New Jersey came too late to impact Q1 revenues, but the fact that it has immediately vaulted into pole position in the online poker market will definitely please investors.

Amaya now knows enough about the revenues it can expect from New Jersey to make a good estimate of the contribution they will make to 2016 full year results.

Based on only ten days of operations, March online poker revenues came in at just under $600,000, almost 60 percent of the poker revenues reported by the Borgata/partypoker partnership.

Rafi Ashkenazi will be sure to add some positive words about the success of the New Jersey market entry. Where he is likely to be questioned is on the revenues and market share of the PokerStars casino offering.

In New Jersey, casino revenues account for over 80 percent of online earnings, and investors will want to see that PokerStars has made a good start at garnering market share.

Poker

Impact of customer reward scheme changes

The beginning of the year saw the introduction of a radically changed customer rewards program that reduced the rakeback paid to the highest volume players. As part of a strategy to reshape the PokerStars poker ecology, the company has already announced that the VIP scheme changes are succeeding.

Nonetheless, the changes caused well-publicized opposition from players, including some very high profile players, and investors were nervous about the impact the changes will have made to PokerStars hitherto stellar reputation amongst customers.

Expect some reference to the effect of the changes on revenues, and perhaps an indication of how new player sign-ups have grown since January 1.

Double online poker revenues in five years

A year ago David Baazov set a startling objective:

We are a poker-first business and will build upon and leverage the popularity of our poker brands and our operational excellence to deliver future growth. Our goal is to double the poker sector in the next five years.

He set out three strategies the company would follow to achieve this aim.

  • Entering new markets—New Jersey being the most visible example so far.
  • Innovative marketing and promotions—the recruitment of ambassadors Neymar Jr. and Christian Ronaldo have helped muster in new players from a wider demographic.
  • Product innovation—there has been no blockbuster product to match the success of Zoom poker or Spin & Go tournaments, but the free-play Jackpot Poker game has been launched for mobile devices.

The proof of the pudding will be in the revenue numbers. Q1 2015 reported operating revenues of CA$340 million ($265 million). Ninety-four percent of these revenues came from online poker.

An increase of 10 percent on these figures will probably be sufficient to give credibility to Baazov’s forecast.

The merger of the Full Tilt and PokerStars player base

Some comment may be expected on the decision to share player liquidity between Full Tilt and PokerStars. The merger happens the day after the results are due to be issued, so nothing more than a rationale for the decision can be expected.

Casino

Casino revenues well outpace online poker revenues globally, and Amaya’s ability to leverage the PokerStars brand into the casino space is critical to analyst calculations of the company’s future value.

Ultimately, Amaya is looking for around 30 percent of revenues to come from casino games in the markets where they are offered.

For 2015 it forecast 13 percent based on performance in Q1. Any number in excess of 13 percent will be good.

Any details about market share in Spain will be of particular interest because the Spanish market has had PokerStars casino games available for longer than any other jurisdiction.

Sports betting

The annual report for 2015 explained that sports betting earnings were trivial, but that they were expected to improve when the product was rolled out to more markets and promoted to more customers.

Any numbers for sports betting will be scrutinized carefully. Casino games may be growing faster than sports betting, but sports remains the biggest revenue generator for online gambling games (excluding lottery).

One of the reasons why investor sentiment turned against Amaya after the Q3 results were published last year was that the rollout of sports betting was taking longer than expected.

Regulatory and legal issues

Kentucky

The $870 million ruling against PokerStars by a Kentucky court may not get a mention since the case remains under appeal. However, any reassurance that Amaya can give investors about the progress of the appeal will be welcome.

Russia

Russia is one of PokerStars’ largest markets and any insight into the regulatory position will be informative.

Last week, a new measure to penalize players found gambling on unlicensed sites was submitted to parliament. Should the measure pass, it has the potential to reduce revenues, although the impact would be more than mitigated if Russia introduces a regulatory system for online poker next year.

Greece, Portugal, and the Netherlands

In Greece, new proposals for online gambling regulation are accompanied by extremely high taxes. Last year Amaya revenues were reduced by the Greek fiscal crisis, and the new laws are unlikely to give the company a chance to recover the lost business. Any comment to the contrary would be interesting.

PokerStars had to pull out of Portugal as it passed new laws last year. New gambling licenses are expected to be issued from June, which may mean that Amaya Q3 revenues could see the return of a contribution from the Portuguese market.

The new gambling laws in the Netherlands are not expected to lead to licenses being issued before Spring 2017. A guide to the timetable Amaya expects to follow in the country would be useful, as would any comment as to whether the proposals to raise gaming taxes from 20 percent to 29 percent are likely to pass.

David Baazov investigation

It is difficult to see what comment Amaya could make on the charges which have been made against David Baazov, other than to reiterate his plea of innocence.

The board set up a special committee to investigate additional allegations not made when the matter was first investigated internally. Any report from the investigation is unlikely to be made public until after the court case against Baazov is concluded.

A timeframe for the case would be useful. Baazov has stepped down temporarily, but how long will he be absent?

The trading update may make reference to the class action which U.S. lawyers are attempting to mount on behalf of investors. The action alleges that investors lost money because they were deceived by the company, which failed to inform them that Baazov was acting illegally as alleged by the AMF.

Bids for the company

An additional reason why Baazov relinquished his position as CEO was because he needed to give his attention to his own proposed bid for Amaya.

The progress of Baazov’s bid, or that of any other possible bidder, should be specifically mentioned in the trading update. In the absence of any material event, or public statement from potential bidders, the details that will be made available are likely to be sparse.

Debt and share buybacks

2015 was a great year for Amaya in terms of paying back debt, restructuring the remaining debt to reduce interest costs, and implementing a program of share buybacks to support the share price.

Share buybacks are not likely to be on the agenda this year, but debt repayment is likely to continue on pace.

Earnings guidance

Q1 2015 saw full year earnings guidance of CA$1.446 billion ($1.13 billion) and CA$1.564 billion ($1.22 billion). In Q3, this was restated downwards by 14 percent to CA$1.289 to CA$1.339 billion ($1.01 billion to $1.05 billion).

The actual outcome was CA$1.371 billion ($1.07 billion).

Guidance for 2016 should be well in excess of these figures, albeit there will be caveats regarding legal liability risk.

Now that Amaya is listed on NASDAQ as well as the Toronto Stock Exchange, it has decided to report its earnings in U.S rather than Canadian dollars. Monday’s trading update will be the first time the new reporting currency will be used.

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Joss Wood
- A former editor of Poker Industry Pro, Joss Wood is a graduate in English from the University of Birmingham. Joss also holds a master’s degree in Organisational Development from the University of Manchester. His career path has taken him from the British Army, through business and finance to seven years as a successful professional poker player.