bwin.party poopered as restructuring hits sales

Online gaming operator bwin.party saw sales shrink sharply in the first quarter as it looks to restructure in the face of increased regulation.

Revenue in the three months to March 31st of €180.2m was down 17% compared to the same period in 2012 and 13% compared to the previous quarter.

As well as a new 5.0% turnover tax on sports betting in Germany, Chief Executive Officer Norbert Teufelberger attributed the drop to the group's previously announced strategic shift "from volume to value" as it reduced acquisition marketing where regulatory risk are increasing.

Furthermore, bwin suffered lower-than-expected player activity in some areas, with poker deteriorating further due to competition and casino recovering less than expected following a previous migration of a 13m player database at the end of December which caused some initial attrition that has since stabilised.

Wagers on sports betting in Germany fell by 52% year-on-year, leading to a 31% fall in the amount wagered to €749.2m year-on-year.

The impact on net sports revenue however was partially offset by a strong increase in gross win margin to 9.9% from 7.8%, meaning daily net revenue fell by 4.0% to €744,400.

Teufelberger noted that seasonality and the absence of a major football tournament this year mean that revenue trends were unlikely to improve until the second half of the year.

Teufelberger added that the group's shift in tactics will see it optimise the shape and size of the business, "a process that is expected to reduce total revenue in 2013 by up to 10% compared with 2012".

He said he remained comfortable with a previous pledge to deliver total annual savings of €70m in 2013, with further savings in 2014 and 2015

Moreover, a series of new product launches and the opening of poker and casino in New Jersey in the US provides encouragement, with Nevada and California expected to follow, while Pennsylvania, Illinois, Massachusetts and New York are pondering the possibility.

Bwin said it was "finalising preparations" to enable it to be eligible to launch several branded services in New Jersey as soon as the market opens - currently expected to be at the end of November 2013.

Subsequent to the quarter-end, the declines has been even sharper, with the six weeks to May 12th seeing sales fall 22% year-on-year to €1.6m as a particularly weak gross win margin in sports betting and casino hit home.

So at the current run-rate, revenue is short of some full-year analyst expectations, and house broker Numis has downgraded earnings expectations into line with consensus of €155m.

Shares in bwin.party were down 4.6% to 136.6p at 09:35 on Tuesday.

OH