Internet poker stocks: know when to fold 'em

Internet poker stocks: know when to fold 'em - at Moneyweek.co.uk - the best of the weeks international financial media.

Poker has changed. No longer the preserve of whisky-sodden old men, anyone with an internet connection can set up an account and pit themselves against fellow enthusiasts from across the globe. And it's Americans who have truly fallen for the online-poker craze, accounting for more than 70% of all players, says Andrew Bary in Barron's. Drawn in by the huge success of TV tournaments such as the World Series of Poker, an estimated 1.7 million players are currently active, with an average of 150,000 people gambling each day, according to PokerPulse.com.

In total, more than 200 online poker sites generate $2bn a year in revenues, equal to 40% of last year's $5bn in Las Vegas. And Britain, too, has become a nation of gamblers, says Ben Wright in The Business. Research compiled by website 888.com, owned by Cassava Enterprises, a Gibraltar-based firm and one of two online gambling companies looking to list on the London Stock Exchange, shows that the number of Britons betting online has risen more than six-fold since 2003. Research by YouGov found that almost 80% of Europe's online players are British.

In the past year or so, a host of small listed companies have made fortunes for investors.  For example, shares in Betinternet.com have surged 77% in the last twelve months, from 8.18p to 14.5p, while Sportingbet - the biggest UK success story - has done even better, jumping more than fourfold from 77p to 334p. Meanwhile, a handful of investors led by Ruth Parasol, a Californian lawyer and web-porn veteran, can expect to realise "mind-boggling" paper fortunes later this year when they float PartyGaming (whose PartyPoker site accounts for more than half the online poker market) in London, says Dominic Walsh in The Times. Other big names include PokerRoom.com, set up in 1999 by two Swedes, and Paradise Poker, bought last autumn by Sportingbet.

But could the poker party be drawing to a close? Nigel Payne, who runs Sportingbet (which earns 60% of its revenue in the US) predicts continuing growth in the poker market of at least 60% a year. But investors would be unwise to bank on such phenomenal growth, and should consider carefully whether all the potential good news is already priced into valuations. One big potential brake on growth is US government regulation. In America, gambling websites tread a "precarious" path amid heavy opposition from lawmakers and authorities, says Amy Yee in the FT. Lawmakers have persistently tried to ban internet gambling on the grounds that it's a gateway for money laundering, under-age wagering and addiction. The Bush administration has made "headway" curbing online advertising of internet gambling as well as credit-card transactions on online gaming sites - with another internet gambling bill in the offing.

Longer-term, mobile-phone gambling looks set to trump them all, says Natalie Hanman in The Guardian. A new report by Juniper estimates that, by 2009, mobile-gambling services will generate revenues of more than $19.3bn, nearly a third of all mobile-entertainment revenues. Java-enabled graphics, colour-filled screens and 3G networking combine to provide a service that rivals traditional gambling methods. But in the meantime, investors thinking of taking a punt on poker stocks should think hard before staking too much.

Recommended

A cheap investment trust with a good record
Investment trusts

A cheap investment trust with a good record

This cheap investment trust’s yield of almost 9% may look too good to be true, but should be sustainable, says Max King.
25 Jan 2022
Three innovative Asian stocks to buy now
Share tips

Three innovative Asian stocks to buy now

Professional investor Fay Ren of the Cerno Pacific Fund highlights three of her favourite Asian stocks to buy now
24 Jan 2022
Share tips of the week – 21 January
Share tips

Share tips of the week – 21 January

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
21 Jan 2022
Seven cheap defence stocks to buy now
Share tips

Seven cheap defence stocks to buy now

We’ve got used to a world without war between major powers, but that era is coming to an end as Russia threatens Ukraine and China eyes Taiwan. Buy de…
21 Jan 2022

Most Popular

Shareholder capitalism: why we must return power to listed companies’ ultimate owners
Investment strategy

Shareholder capitalism: why we must return power to listed companies’ ultimate owners

Under our system of shareholder capitalism it's not fund managers, it‘s the individual investors – the company's ultimate owners – who should be telli…
24 Jan 2022
Three innovative Asian stocks to buy now
Share tips

Three innovative Asian stocks to buy now

Professional investor Fay Ren of the Cerno Pacific Fund highlights three of her favourite Asian stocks to buy now
24 Jan 2022
Ask for a pay rise – everyone else is
Inflation

Ask for a pay rise – everyone else is

As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why yo…
17 Jan 2022