Analysis: Has PartyPoker relaunch failed to kick-start growth?
Share price falls as revamped platform shows little sign of clawing back market share in Europe - but US progress is a sign new-look PartyPoker has potential
When bwin.party launched its revamped PartyPoker product in September it was heralded as a fresh start for the firm, a catalyst which would put it back on the path to growth.
Whether or not that will prove to be the case is up for debate, however Morgan Stanley this week voiced its concern that the relaunch “does not appear to be working” and pointed to a continued decline in liquidity.
The demise of poker is a familiar story for several egaming operators but bwin.party needs growth more urgently than most. In November it posted a 21% year-on-year drop in Q3 revenues, revealing all four verticals in decline. Poker suffered the biggest dip during the period with revenues down 37% year-on-year to 23.3m.
Since its relaunch the new-look platform’s slick design and gameplay, which also included a range of social features, has been applauded by many.
It was timed perfectly for launch in New Jersey where the product “ and brand name “ has been received well by players and is comfortably beating the likes of 888 and Caesars Interactive in the battle for market share.
Long-term success
Yet while there has been a strong start “ if not one that is necessarily demonstrative of long-term success “ in the US, closer to home the new PartyPoker has had less of an impact.
Morgan Stanley highlighted a short-term boost to player traffic following the relaunch which has subsequently fallen back. And while it estimates poker accounts for just 16% of overall bwin.party revenues, poker players contribute 60-70% of casino revenue, meaning it is around 35% of revenue overall.
Liquidity is of course just one element on which to gauge success, and it is important to remember that this initial roll-out phase is solely for the dot.com market. The value of the players it is attracting is also a significant factor and one that the market has yet to see.
But the City has become impatient waiting for signs of a turnaround at bwin.party. A long-term failure of the new poker platform would only add to negative views over quality of mobile products and continued reliance on higher-risk markets despite efforts to the contrary.
“We think expectations are fairly high for a turnaround in the poker division, and with player volume trends looking weak, we see scope for disappointment here,” Morgan Stanley analysts wrote.
Shares in the operator dropped 3.4% to 120.7p on Tuesday and have since dropped further to 114p. Bwin.party must arrest this decline and cannot rely on the US to do so.
Former City analyst and William Hill corporate development director Paul Leyland says there is an extent to which bwin.party needed to demonstrate it could “own” poker again and combat the overall decline the vertical is facing. “But it is a far more balanced business now than when it was PartyGaming and does have a credible poker business, including in ring-fenced, regulated markets,” he adds.
Increased competition
For poker to become a success story again bwin.party must be prepared to fight an expensive marketing battle with 888 “ arguably its closest rival. Catching up with PokerStars in any market outside the US is now unrealistic, while Morgan Stanley highlighted Full Tilt’s venture into casino as another threat on the horizon for the firm.
The issue with getting into a poker marketing dogfight, however, is that the budget to do so is diminishing rapidly. Bwin.party’s exit from lucrative markets such as Greece – where ISP blocking has taken place – means less spare cash, while a cut in marketing spend has also been initiated to protect EBITDA margins.
“The company needs to see some of its strategic opportunities become cash generative before there is a further squeeze on dot.com cash flow,” says Leyland.
With the backdrop of declining revenues and increased competition it is clearly a testing time for bwin.party. In reality it is too early to judge the PartyPoker overhaul, especially with a brand new mobile product on the horizon, but how long investors will hold out is another matter.