The key takeaways from Stars Group’s FY17 results

The Stars Group reported its FY17 results yesterday with revenues up 10.5% across the board. However in the subsequent analyst call, management noted some major headwinds for 2018, as well as some significant opportunities.

Here are the key takeways:

Red flags in Russia

Stars flagged it expected enhanced payment blocking efforts from Russia to come into force in May, warning of a potential major impact on poker revenues, although it refused to specify an exact impact.

CFO Brian Kyle noted: “We are currently reviewing recent Russian regulations that will likely restrict the number of Russian payment processors who elect to engage with offshore online gaming operators. We are actively monitoring this situation and proactively developing a strategy to address any potential negative outcome.”

Regulus Partners estimated Russia accounted for circa 11% of Stars’ total revenue on a population-mix basis, while Canaccord Genuity had it slightly below 10%.

And while Stars indicated it may apply for a Russian sports betting licence, and would continue to lobby for poker legislation, Regulus noted: “Given product restrictions, proposed fiscal tightening and a generally dim view on gambling taken by Russia, it is unlikely that a piece of the regulated Russian market will amount to much, in our view.

“Given that poker is only stabilised and heavily liquidity dependent, we believe this loss would be a substantial blow to the business.

Stars Rewards paying off

Elsewhere, CEO Rafi Ashkenazi hailed the positive benefits of the Stars Rewards programme, noting it was one of the main reasons behind the small growth in poker.

The firm said approximately 90% of customers opt into the programme on a daily basis and engagement is strong with approximately 97% of rewards claimed.

“The Stars Group believes the programme has positively impacted the overall product ecosystem across verticals and continues to receive positive feedback from most players,” the firm noted.

Shared liquidity bump

Stars said early indications from the January launch of shared player pools in France and Spain had been “encouraging”, with Ashkenazi noting the combined pools were up about 30% compared to two markets operating separately.

The operator added that it anticipated adding Portugal to the pool in Q2 and potentially Italy by the end of the year.

India launch planned for Q2

As noted previously, Stars has entered into an agreement with a “well-established domestic licensed lottery and gaming operator” ahead of a launch in the Indian market.

Ashkenazi said the PokerStars-powered brand would go live in the second quarter initially on a “ring-fenced basis”, with no international liquidity.

The exec added: “I believe it will take a few years for the business to reach profitability and for us to receive noticeable license fees.”

Proprietary games

Ashkenazi revealed Stars had established an internal casino games studio, which was “dedicated to producing proprietary titles like Stars Mega Spin and Millionaires Island which have been popular with our customers”.

He added: “Going forward, we will continue to improve the customer experience through improved customer journey, greater variety of popular games and more exclusive games on our platforms.”

Synergies down under

Stars noted it expects to squeeze more from William Hill Australia customers using the CrownBet platform and executive team.

Chief corporate development officer, Robin Chhabra, told analysts: “If you just look at the CrownBet platform versus the William Hill platform, the customers there are generating more bets per active user. The margins that the CrownBet trading team are generating for a given set of customers is also higher than what William Hill was achieving.”

Chhabra also noted CrownBet had the “richest loyalty scheme in Australia” and some unique assets like exclusive access to racing streaming on mobile.

“So we do expect the acquired customers from William Hill to respond positively to the CrownBet offering,” he added. “But again, we’re cautiously optimistic and we’re not putting any numbers against that as yet.”