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Stars Group CEO Rafi Ashkenazi is having a good day. This morning, May 10, saw shares in the company formerly known as Amaya hit a high of CA$45.84 on the Toronto Stock Exchange after the markets reacted positively to its Q1 2018 financial results.
The webcast and presentation slides can be viewed here (registration required)
Overall, revenues for the first quarter were $392.9 million, 23.8 percent higher than Q1 of 2017. Foreign exchange movements had a big impact in the right direction. Without their help, the increase would have been 12.4 percent.
Also, 62.6 percent of revenues came from poker with 34.2 percent of revenues from the combined sports betting and casino business.
Part of that good news came from online poker, which saw quarterly revenues of $245.9 million, up 12.4 percent year on year.
The news wasn’t quite so good as it looked since most of that increase came from the impact of a strong US dollar. Nevertheless, assuming the same exchange rate as last year would still show poker revenues up by 2.3 percent.
Considering that PokerStars has had to pull out of markets like Australia and Colombia in the last year, even the 2.3 percent figure comes off as impressive, and it definitely indicates that online poker is not a stagnant part of the iGaming industry.
Stars’ new CFO Brian Kyle explained that the increase was driven by the “positive impact of the Stars Rewards loyalty program” and by the introduction of shared liquidity in France and Spain.
Following an international agreement signed in early 2017, PokerStars combined its French and Spanish player pool in the middle of January this year.
During the conference call with investors, Stars explained that sharing liquidity had produced a 30 to 35 percent increase in revenues. The player pool in Portugal will join the shared liquidity platform this month, “potentially very soon” according to Ashkenazi.
Ashkenazi added that he hopes that Italy will also join the European shared liquidity pool, but it won’t be “this year.” If Italy does join, then that would be a significant change, as the Italian poker market is one of the largest in Europe.
The big growth number for the Stars Group came from sports betting and casino. Combined revenues for the first quarter were $134.5 million an increase of approximately 55 percent compared to Q1 2017. Sportsbook is now accounting for 20.7 percent of the combined revenues.
Stars’ acquisition of 80 percent of CrownBet, which began in February this year and was completed in April, made a contribution of around $11 million to sportsbook revenues.
Stars has also bought William Hill Australia and expects it to soon start feeding in more revenues from the Australian market. Perhaps surprisingly, Australia is the world’s second-largest online sports betting market.
At the moment Stars sees poker and sports betting as low-cost acquisition channels, and many of its casino customers come from cross-selling casino to these other business verticals. 35 percent of casino players come from PokerStars, and Ashkenazi sees no reason why sports betting can’t attract similar player numbers.
The 2018 football World Cup in Russia is a great sporting event to help promote the BetStars brand, but Stars is using it across all its verticals with an audacious £100 million ($135.13 million) promotion.
The free-to-enter competition will pay out £100 million to any customer who correctly forecasts the outcome of all 64 matches in the World Cup competition.
An unlikely feat of prediction, but the promotion is certainly headline-grabbing, and has the potential to attract many new players to try out the Stars Group’s iGaming brands.
Last month the Stars Group announced that it was buying Sky Betting and Gaming (SBG) for $4.7 billion. The deal will make the Stars Group the largest publicly quoted online gambling company in the world.
Ashkenazi laid out the deal rationale in an investor call specific to the deal and he reiterated his case to investors this morning.
There is substantial scope for both growth and cross-selling, and the characteristics of the Sky player base make for interesting reading from a poker perspective.
PokerStars players might well see an influx of young recreational players at low-stakes games, potentially rebalancing the poker ecology further away from the high-volume regular players.
Stars expects to retain the distinctive Sky brands, and will keep players on Sky software at least initially. However, Sky’s poker players should not expect this to last for too long. The arguments for moving players across to the PokerStars software platform and player pool are far too strong to resist.
As soon as the IT guys can come up with a Sky-branded version of the PokerStars software, Sky poker players are likely to be transitioned across. This will give them access to massively more player liquidity, a common “wallet” that works across all Stars brands, and much larger tournament guarantees and promotions.
While there was undoubtedly a lot of good news at least from an investor’s point of view, there were also some negatives.
Stars reports player numbers in a key performance indicator called Quarterly Active Uniques (QAU).
This quarter’s numbers for QAU were down 4.6 percent against last year to a total of 2.24 million. A total of 2.09 million of these played online poker during the quarter, a reduction of 5.5 percent compared with Q1 of 2017.
This was adequately explained as the result of the focus on “positive return customer relationship management initiatives to attract high-value, net-depositing customers (primarily recreational players) and the cessation of operations or difficult operating conditions in certain markets including Australia and Colombia.”
If we throw out the management-speak, Stars is basically saying that the new rewards program has helped to reduce the number of players that don’t provide profits and replace them with players that do.
Evidence for this was provided by the figures for net deposits:
It’s clear that there is no chance of PokerStars reversing its rewards strategy and going back to one which professional high volume players will welcome.
Of more concern to investors was that QAUs for online casino also dropped by 2.4 percent year-over-year. This prompted a question from one investor during the results call and the response did not really add much clarification.
And yet there seemed no reason not to blow the question out of the water.
Combined sports betting and casino revenues grew by 39.3 percent year-on-year, excluding the positive effects of foreign exchange fluctuations. $11 million of the increase came from the acquisition of CrownBet, but that still left revenues up by a market-beating, over-performing amount.
I’m left not knowing why player numbers are down and revenues are up. It’s good news, I think, but after the question response I’m not sure.
I’ll give the last word to Ashkenazi who said in a more polite way, that the bad old days of Stars under the Amaya brand are now well and truly gone and that a bright future beckons:
“We are pleased with the performance of each of our verticals, poker, casino and sportsbook, which are benefiting not only from the continued success of Stars Rewards, but also from our strategy of focusing on the customer and continued improvements to our product offerings.”
“Moving forward, the exceptional foundation of our existing business will be complemented by our acquisitions of CrownBet and William Hill Australia, and expected completion of the Sky Betting & Gaming acquisition. These acquisitions will help diversify our revenue base, increase our exposure to regulated markets, and transform our combined sportsbook into a second customer acquisition channel. These new additions will accelerate not only the organic growth we are seeing in our existing business, but also our progress towards realizing our vision of becoming the world’s favorite iGaming destination.”