PokerStars Sees a Drop in Profits in 2016
PokerStars Sees a Drop in Profits in 2016 while Parent Company Amaya Sees Gain
Canadian gambling giant, Amaya, Inc., announced their earnings for the fourth quarter of 2016 on Wednesday the 22nd of March 2017. The company that owns the world’s largest online poker platform had mixed news to report.
According to their data, overall year over year revenues rose by 5.9 per cent in the fourth quarter of last year. Revenues for the period were reported at USD 310 million.
At the same time income for the whole of 2016 were also revealed. Revenues for the whole year of 2016 were reported at USD 1.15 billion. This reflected a 7.8 per cent year over year increase compared to the twelve months of 2015. Total earnings of USD 1.07 billion were reported in 2015. Nevertheless, according to Bloomberg, average projection for profits in the quarter was predicted at 56 cents per share. The fourth quarter saw profits miss the forecast; with prices showing an average profit of 53 cents a share.
Real- money online poker revenues for Amaya were down as well.
Real- Money Online Poker Revenues
Real money poker revenues for the final quarter of the year were noted at USD 217.2 million. This reflected a year over year decline of 5.1 per cent. For the whole of 2016, real money poker revenues also saw a drop in numbers. Total earnings of USD 846.1 million were generated in the twelve months of 2016. This showed a year over year decrease of 4.6 per cent compared to full year revenues from 2015.
Amaya’s PokerStars has about 70 per cent of the worldwide online poker market. This comes to roughly 100 million registered poker players worldwide. However, in the US, the company only operates in one state – New Jersey. The Canadian company has been trying its level best, with extensive lobbying efforts, to open up shop in new states too. So far, their efforts have failed to produce any tangible results.
The company further stated that even if you excluded the impact of year over year changes in foreign exchange rate, the revenues have shown a decrease. They were down by about one percent for the quarter (Q4) and flat for the year.
Amaya’s reliance on poker has been evident since the takeover, but the company is trying to diversify. In 2015, poker accounted for 82.7 per cent of total company revenue. However in 2016 it was only 73.2 per cent. Sales however have shown an upward trend.
The growth seems to be coming from other casino games that have been introduced to and integrated with the poker platform. Despite the record revenue for the company “2016 was a record year of revenues for Amaya,” CEO Rafi Ashkenazi said in a statement.
He added, “Our proactive changes to the poker ecosystem and customer acquisition initiatives continue to reverse certain negative trends and we are starting to see organic growth in that business, our casino offering exceeded expectations as we introduced limited marketing campaigns and focused on our cross-sell efforts, and we continued to build and develop our sportsbook.”
Rebalancing the Poker Ecosystem
Amaya attributed record revenues in the fourth quarter and across 2016 to “proactive changes” to the online poker ecosystem and better than expected growth in the online casino operations.
Changes in the PokerStars ecosystem in 2015 lead to protests by their high volume, high stakes players, who were, by definition, their best customers. However, Amaya wanted to tip the scales in favour of their recreational players. These players tend to deposit more money than collect from any operator. They had been scared away by a widening skill gap on the PokerStars poker rooms. Highly skilled players were also increasingly using poker tracking software by multi- tabling.
Amaya decided to tweak their player rewards scheme and introduced a host of recreational- friendly, jackpot style games to their poker platform. These were designed to level the playing field by increasing the luck factor as opposed to skill. While professional players were no doubt vexed by the move, it seems to have worked in the favour of the company.
Despite this success, Amaya has been cautious about relying completely on poker as the sole earner for the brand. The interest for the game continues to observe a globally waning with the passage of time.
Rafi Ashkenazi, the CEO of Amaya Inc., said, “[Changes to poker] and customer acquisition initiatives continue to reverse certain negative trends and we are starting to see organic growth in that business, our casino offering exceeded expectations as we introduced limited marketing campaigns and focused on our cross-sell efforts, and we continued to build and develop our sportsbook.”
On that note, we can see that poker has been responsible for a decreasing proportion of the revenues over the months. Real money poker accounted for about 70 per cent of revenue in the fourth quarter of 2016 (Q4), compared to 78 per cent in the previous quarter (Q3) and 83 per cent in 2015. At the same time, the share of online casino and sports book for Amaya rose to from 17.2 percent in the third quarter of 2016 (Q3) to 25.8 per cent in the fourth (Q4).
Delving further into other data, the stats show that the company acquired 2.6 million registered gamblers in the fourth quarter of last year alone. In the last six months, PokerStars has averaged an acquisition of about 12,500 cash game players. This analysis was put forth by the tracking from PokerScout.
At least 2017 has started on a better note for the company. The first two months of the new year generated a total revenue of USD 215.3 million. This showed a 13.3 per cent year over year growth compared to the same period last year. Through all of February 2017, real money online poker revenue had accounted for less than 70 per cent of total revenue.
Despite all the positivity so far, there may be trouble looming ahead. Australia, one of the largest gambling markets in the world is poised to shut its doors on online poker. This would mean that the company could be taking a significant hit later on this year. PokerStars have themselves hinted on leaving the market to minimise the damage on their finances and reputation.
To further dampen spirits, CEO David Baazov has now been scheduled to go to trial. The trial, which has been listed for fall this year, is over insider trading allegations. These all relate back to the company’s USD 4.9 billion takeover of PokerStars in 2014. Baazov was involved in selling nearly USD 100 million of Amaya stock at the time. The insider trading investigation was the largest of its kind in Canadian history.
Nevertheless, Amaya is reducing the debt it had accumulated during the PokerStars takeover. This means that their increase in revenues will soon begin to translate into bigger profits too.
Ashkenazi said, “The strong performance of our business has helped us to reduce our currency risk, lower our interest expense, and accelerate the payment of the remaining amounts owed on our deferred payment obligation, all of which will allow us to continue pursuing our four strategic priorities. We expect to continue our 2016 momentum and execute on our strategy in 2017.”
Amaya Inc., the Canadian gaming and online gambling corporation was founded in 2004. Headquartered in Montreal, Quebec, the company trade on the Toronto Stock Exchange (TSX: AYA). In June 2014, the company acquired the parent company for PokerStars and Full Tilt – Rational Group, from Isai and Mark Scheinberg for USD 4.9 billion. With this Amaya became the largest publicly listed online gambling company in the world.
Before that, Amaya primarily provided business to business (B2B) gaming solutions, products and services. This included the design, development, manufacturing, distribution, sale and service of technology based gaming solutions for the regulated gaming and interactive entertainment industries worldwide. They supplied mainly to land- based and online gaming operators; as well as governmental agencies and ultimately indirectly to end-users and consumers.
Amaya also offers gaming products and services that include online casino, poker, sportsbook, platform, lotteries and slot machines software. The company has offices in North America, Latin America, Europe and Asia. They are continuously developing their proprietary platforms and have invested significantly in their technological infrastructure; all to ensure a positive experience for their customers.