Live blog: 888 H1 2019 financial results

CEO Itai Pazner now delving into the company’s operational progress

Rolling out new tech stack for B2B Dragonfish product this year – aims to have 50% of partners on it by end of year. “I cant promise it will have the same impact as Orbit, but will have smoother UI and UX”

Pazner says abiltiy to play poker in portrait mode via Poker8 has given them an edge over other operators: “I know it sounds simple but it lets you play with one hand and appeals to recreational players”

Aiming to launch in Netherlands in 2021 and looking to relaunch poker in France and add that to share liquidity pool between Spain and Portugal. “We remain committed to poker and are aiming to be a top three operator”

Having launched football predictor game Up For 8, over 50% of active customers are participating. “Performing very well and is another recreational product”

BetBright integration on track – first 888sport version still aiming to be launched in Q1 2020 in Sweden

Pazner highlights strength of internal games studio Section8 – says it is biggest single provider on the site, driven by customer demand. Points to Red Tiger acquisition for £200m+ and says it highlights value of a quality studio

 Like-for-like comparison across 888’s business segments

The 888 investor call is now underway…

888 warns that the UKGC’s ongoing consultation into the use of credit cards for gambling could be bad news

“Should the Commission implement material restrictions on the use of credit cards for online gambling and betting, this could have an adverse impact on the Group’s business in the UK market.”

What the analysts are saying about the results

Regulus Partners: “888 has undoubtedly made some operational progress in UK and Europe, though a combination of very easy comps (especially UK, where the competitor environment has also become briefly favourable), turning the marketing / R&D taps back on somewhat, secular growth and the benefits of a new platform (Orbit) provide strong tail winds. Historically, drivers such as these have not been enough for 888 to maintain its market share on a global level, with headwinds in Germany, Americas and RoW continuing that theme in H119. If 888’s operational progress can be sustained, then it could break out of a recurring pattern of weak topline performance and grinding cost growth, but we do not see underlying performance as solid enough to call that happening yet.”

https://twitter.com/gamblinglamb/status/1171346471498780673

Goodbody: “Overall, HY19 was a solid outcome for 888 with strong momentum in both its Sport and Casino verticals. However, given the softness in B2B, we will likely reduce our FY19 EBITDA by c.3%, which will bring us in line with consensus of $85m. The continued weakness in B2B is not surprising given the challenging UK landscape for many of 888’s Dragonfish clients post the increase in RGD in April of this year. We believe the following issues should act as supports to the share price (i) a valuation that remains attractive at 6.4x FY20 EV/EBITDA, (ii) it has a complete proprietary portfolio of assets across all verticals, (iii) interesting international optionality and (iv) attractive cashflow characteristics. We continue to believe 888 is one of the most likely candidates to take part in corporate activity.”

JP Morgan: “Overall revenue quality continues to improve. The launch in Sweden and Portugal and strong UK growth has pushed regulated/taxed revenue share to 74% vs. 70% in H1 18.”

What’s going on in B2B, where revenue declined by 44% to $14.8m?

Part of the drop is explained by the acquisitions of AAPN and the Costa Bingo brands which transferred from B2B to B2C revenue as well as the migration of Cashcade bingo. Dragonfish’s Bingo network was also affected by wider UK bingo market with increases in gaming duties resulting in some of the group’s partners reducing marketing investment.

888 on the impact of Brexit…

“The status of Gibraltar as a result of Brexit remains unclear. If 888 were to remain registered, licensed and operating in Gibraltar in these circumstances, its ability to rely on EU freedom of services/establishment principles in supplying its services within the EU will be limited; furthermore, it may become ineligible to continue to hold regulatory licences in certain EU jurisdictions. Brexit may also adversely impact economic and market conditions in the United Kingdom, and give rise to a slowdown of UK business for the Company.”

More on Germany

The Group is also assessing the potential impact of the new sports betting regime, curently in the process of approval by the various German states, which would introduce an interim federal licensing regime for online sports betting, but could negatively impact the German casino and poker market.

888 said: “The particulars of the licensing process remain presently unknown, including what limitations will be applied to licensed operators’ offering, however the legislation establishing the interim licensing regime requires operators to undertake not to offer “unlawful gambling” in addition to their licensed offering.”

Why has 888’s share price dipped?

One possible reason is that revenue from Germany declined a hefty 35% as a result of the restrictions and/or withdrawal of certain payment processors (revealed earlier this year by EGR to be PayPal). German revenues were around 6% of the group.

Furthermore, 888 noted a “growing trend” in Germany of players filing civil suits against payment processors seeking the return of funds processed for gambling purposes.

From 888’s results: “Should this trend grow, it could further adversely impact the willingness of processors to continue processing gambling-related payments in this market. In light of these developments, the Group continues to assess its operations in Germany, with a view to averting legal, reputational and operational risks.”

How the markets have reacted (so far) to the results

888’s H1 2019 financial results are now out…

Read EGR‘s rundown of the results HERE. Stay tuned for more updates throughout the morning.