Five things we learned from The Stars Group's Q3 results
Regulated sportsbook revenues are top of the M&A agenda for the PokerStars parent company
The Stars Group last week announced its Q3 earnings, with revenues up 17%cc to $329.4m. Below is five things we learned from the earnings report and subsequent investor call.
1) The firm is looking to acquire regulated sportsbook revenues
It’s well known that Stars is keen to add scale to its sportsbook, with William Hill the failed takeover target in the past. And CEO Rafi Ashkenazi said last week that Stars was still looking at M&A and “had a few targets in mind”.
“The focus for us when it comes to sportsbook is really about revenues,” Ashkenazi said, “And it’s primarily regulated revenues”.
That leaves William Hill firmly in the picture, while US analyst firm Eilers and Krejcik Gamingmooted GVC as a potential dance partner.
“GVC has recently offloaded its Turkish-facing business in an effort to improve its regulatory profile and make it more attractive in the M&A market and has a strong revenue profile across many complimentary near-regulated markets,” Krejcik noted.
2) But BetStars is growing regardless
Sportsbook revenue and handle grew by 90% in the first nine months of the year, with Q3 revenues topping $11m. Ashkenazi also hailed the “relatively significant player base which is coming directly to BetStars and it’s not really depending on the cross-sell from poker”.
The firm said it has been making technology improvement all year (hence the desire to add revenues rather than tech through M&A), and plans to ramp up marketing in Q4, and ahead of the World Cup, with the aim of making sportsbook a profitable standalone business.
3) Poker returned to growth (but did it?)
Real-money poker revenues climbed 7.5%cc to $214m in Q3, with the firm suggesting low-single digit growth could be maintained going forward, thanks largely to the Stars Rewards programme.
However analysts were less inclined to see the uptick as sustainable, with active poker users flat at around two million, meaning all the growth came from existing players.
Paul Leyland at Regulus Partners said the limited growth in actives told “a bigger and more strategically relevant story,” adding “Poker is typically a small market in nearly every jurisdiction and sustainable growth remains unproven at best”.
4) A similar story in casino
Casino and sportsbook revenues climbed 48% to $95m in Q3, but casino active uniques were only up 20%, meaning the firm is getting a better yield from existing customers. Askhenazi pointed to live dealer products, which are traditionally higher staking, as a key driver of growth.
“We see a very significant increase when it comes to our live dealer offerings,” he said. “To an extent, we believe we may be the largest live dealer operator out there among public companies.”
The CEO also pointed to new slots from Tier 1 operators, improved UX, the launch of the standalone casino mobile app and a fledgling VIP scheme.
5) More investment in new forms of poker
PokerStars beta-launched its PowerUp variant earlier this year, which sought to bring a new audience to poker by introducing elements of esports to the game.
Ashkenazi said Power Up had generated “meaningful poker player buzz,” and the operator anticipated a full-scale commercial launch in early 2018.
He added: “We also intend to run up investments in R&D to pioneer new and engaging variationsof the traditional poker format.
“We believe that Power Up and other future game variants will help us to increase engagement among existing players and attract a new generation and new audience of online poker players.”