The Stars Group misses earnings forecasts on “historically” low Sky Bet margins

Pro forma revenues down around 6%cc as Sky Bet sportsbook revenues drop 37%

The Stars Group’s share price dipped today after a sluggish Q1 saw the firm miss its consensus revenue estimates by more than $30m.

The firm saw poker revenues decline, casino revenues stagnate and Sky Betting & Gaming (SBG) revenues slide after a “historically” low margin on sports bets.

Group revenue came in at $580m, down around 6%cc on a pro-forma basis, and some way below the $613m Bloomberg consensus estimate.

In the international segment (largely PokerStars), poker revenues fell nearly 5%cc to $235m, while casino was up just 1%cc to $108m.

Stars attributed the slowdown largely to switching off products in Switzerland and Slovakia, as well as payment headwinds in markets like Norway and Russia.

The SBG segment also saw a 12% drop in revenues to £138m, as Sky Bet margins fell to a “historic low” of 5%, meaning sportsbook revenues fell 37% to £58m.

Stars also highlighted a major investment in customer acquisition, particularly around the Cheltenham Festival as a reason for the downturn.

Stars noted: “The promotional activity was particularly successful and contributed to the growth in QAUs and Stakes as noted below, accelerating the underlying performance of the segment during the quarter which, [support] the United Kingdom segment for the remainder of the year and into the medium-term.”

Stakes climbed 16% to £1.2bn and QAU’s climbed 18% to 2.1 million.

The Stars Group CEO Rafi Ashkenazi said: “We continued to see growth in most markets in our International segment on a constant currency basis during the quarter, despite challenging operational conditions, the cessation of operations in certain markets and foreign exchange headwinds having a significant impact on our reported results as compared to the first quarter in 2018.

“Our United Kingdom segment continues to exceed our expectations operationally with record levels of new depositing customers, and an acceleration of growth in QAUs, Stakes and gaming revenue, although this performance was masked in the reported results by a record low Betting Net Win Margin of 5%.”

Ashkenazi said underlying trends were similar in April and into May across the three business, but with a significantly higher margin in the UK,  above its historical average of 9%.

Regulus Partners noted: “Impressive strategic momentum continues with the FOX Sports deal, but the operational performance looks somewhat mixed to us and needs to develop from here, in our view.”

Stars shares were down 3% in early trading following the update.

Finance | Sky Bet | Sky Betting & Gaming | The Stars Group