Analysis: Bwin.party's waiting game
With the long-awaited poker relaunch set for Q3, the pressure on bwin.party to return to growth continues to build
At the recent Global Executive Summit in Barcelona, Bwin.party’s charismatic CEO Norbert Teufelberger was somewhat subdued. The head of the online gaming giant was appearing on a CEO panel discussing the future of online gambling on the same day a trading update was released pointing to softer than expected revenues in Q2. But rather than come out fighting, he took a more considered approach.
When faced with a softball opening question, he instead took the issue head on and admitted the firm was having a “difficult time”. Although there were no numbers released in the trading update it pointed towards a drop in gross margin in sports betting in April and June and a squeeze on bingo revenues in Italy and the UK during the period. It also said trends seen in casino and poker during Q1, where both verticals showed double-digit drops in revenue, had continued into Q2.
This all comes against a backdrop of strong growth from some of its peers, driven by mobile sports betting. Nonetheless Teufelberger put a positive spin on it in the trading update pointing out it reflected the shift from “volume to value” and a “challenging competitive and market backdrop”. Crucially he also noted the firm was still on course to record 70m in cost savings during 2013, and pointed to the launch of new poker and social gaming products in Europe in the second half of the year and a New Jersey launch in November.
But there are issues bwin.party needs to quickly rectify. It has slipped behind many of its competitors in mobile, and has been losing ground in poker to 888. A lot depends on the success of new product launches, particularly the relaunch of its poker software. The firm appears to be holding off a concerted marketing push in poker prior to the relaunch, but with each passing month it loses market share and revenue from what was once the cornerstone of the business.
As far as the head man at bwin.party is concerned the future of online gambling is based around a product that gives consumers an entertaining experience. “Consumers expect to be entertained,” he said. And by implication the current PartyPoker software is not up to the task. “We don’t have the tools at the moment, so we are building them,” he told the crowd of executives. When it comes to technology he admitted they were “behind the competition” with its mobile footprint in particular an area of focus.
It’s an honest approach that has gone down well with some analysts, whose reaction to the bwin.party trading update has been predominately focused on one word: buy. With bwin.party shares trading at a multiple below that of its peers in the sector, analysts at Investec and Deutsche Bank are pretty bullish about its share price with target prices in the 180p range. At the time of writing it was trading at 128p.
There is every reason to expect a significant increase in revenues and market share following the relaunch of the long-awaited poker product. And while social gaming and New Jersey are less sure bets, there are plenty of reasons for bwin.party’s patient confidence in its new direction. A focus on regulated markets, and an investment in product should see a return to growth in the coming months. The question is how much of a head start has bwin.party given the competition?
“In the next 12-24 months you will see who the winners are in technology,” Teufelberger said on the GES panel. There are a number of people betting bwin.party will be among them, and the relaunch of poker will be watched closely by both its supporters and detractors. The big wait will soon be over and it’s time for bwin.party to start delivering on its major promise.