888’s half year results for 2016 managed to avoid mentioning the failed takeover of William Hill, instead concentrating on the group’s rebound from a weak first half in 2015.
Merger and acquisition opportunities remain on the company’s radar, but CEO Itai Freiberger gave out no pointers as to where the company was looking.
Sports betting produced some of the highlights of the results, as the relatively new business vertical for 888 has now been removed from being consolidated with other “emerging markets” to be reported in its own right.
Sports betting revenues are rising rapidly
888sport produced $25 million in revenues for the first six months of 2016, 63 percent more than the same period in 2015. The vertical now accounts for 10.7 percent of 888’s B2C revenues and has overtaken Bingo for the first time.
888 explains the increases as being the result of its “strategic focus and marketing investment.”
Total marketing spend increased from $67 million in the first half of 2015 to $90 million in 2016. The extra spend saw new customer recruitment for sports betting increase by 82 percent.
Growth has also come from expansion into nationally regulated markets. The report stated:
“This outstanding performance was supported by accelerated marketing investment which is strengthening customer recognition of 888Sport as a credible sports betting destination and helped to deliver a very successful Euro 2016 for the Group.
888Sport also benefited from the launches into Spain in the second half of 2014, Denmark towards the end of 2015 and Italy during the first quarter of this year as well as a constantly improving range of markets and live bets for customers to enjoy.”
The Euro 2016 soccer competition has given sports betting operators a substantial boost to their half year earnings. The report devoted a slide to showing how the event had helped grow first-time depositors by 24 percent and active bettors by 21 percent.
888’s geographical reach includes the US
The regional split of 888’s total revenues breaks down as:
- UK: 46 percent
- Europe: 41 percent
- The Americas: 9 percent
- Rest of world: 4 percent
In the US, 888 operates in New Jersey online gambling under its own brand, as well as providing the gaming platform for WSOP. Despite previously announced intentions, 888 has not launched its own brand in the Nevada regulated market, but does provide the poker platform for WSOP Nevada.
In Delaware, 888 provides the gaming platform for the three racinos licensed to offer online gambling.
US trading has been in line with “expectations;” in other words not particularly impressive.
The introduction of shared liquidity between the poker markets in Nevada and Delaware was mentioned more for its future potential as other states get into regulated poker, rather than for any major benefits it has brought.
“We are benefitting from the successful launch of our shared poker player liquidity across Delaware and Nevada early in the first half of last year and we believe that pooled liquidity arrangements will be a key feature of future states as and when they regulate. With our unique position and experience of the US market, we remain confident that 888 remains well placed to capitalise on future potential regulatory developments.”
In a note to the accounts dealing with the joint ventures through which 888 operates with its partners in the US, the company said that its investment had now reduced to nothing.
“Group’s investment in the US joint ventures had reduced to nil due to the US joint ventures cumulative losses exceeding the Group’s investment. In the period ended 30 June 2016, the US joint ventures incurred further losses and, as a result, the Group’s investment remained at nil.”
Customer acquisition and deposits will feed through to future earnings
Unusually, the investor slides include a graphic explaining how marketing spend leads to customer acquisition, thence to deposits and ultimately to revenues.
888 used the explanation to explain how its increased marketing spend was justifiable not just in terms of the revenue increases for this half, but for its impact on future earnings.
At the end of the period, 888 said that it had “Casino, Poker and Sport real money registered customer accounts of 21.9m, up 7% from 31 December 2015.”
Freiberger split out the numbers:
“Strong operational progress continued with 5% and 10% year on year increases in active B2C Casino and Poker customers in Q1 2016 and Q2 2016 respectively and a 22% increase in B2C first time depositors in H1 2016 against the comparable period in the prior year.”
Online poker saw a decline, but less than the wider market
The 10 percent increase in active poker customers did not feed through into a revenue gain.
“Despite 888’s increase in first time depositors, Poker revenue declined 6% compared to the previous period reflecting the challenging broader market dynamics.”
Total poker revenues came in at $42.2 million, down from $45.1 million in the first half of 2015.
888’s casino business is now roughly three times the size of its poker business, with 2016 H1 revenues of $137.4 million, an increase of 31 percent over the 2015 numbers.
888 CEO summary shrugged off the failed William Hill acquisition
It was noteworthy that Itai Freiberger’s summary of the report didn’t mention William Hill, or its short-lived partnership with The Rank Group in anticipation of the takeover.
Instead he focused on the group’s performance as it is, and only in later comments did he mention the possibilities that 888 may still be looking to expand via M&A.
“888 has delivered a very encouraging performance in H1 2016, resulting in a 19% increase in Group revenue to a record $262.0 million. This strong outcome was driven by outstanding momentum at 888Casino and 888Sport where we achieved impressive revenue increases of 31% and 63% respectively.
In line with our strategic focus we have made further excellent progress developing 888 in regulated markets and have grown regulated revenue by 29% against the prior year, reflecting strong performances in the UK, Spain and Italy as well as 888’s recent successful launch in Denmark.
888’s continued success is built on our first class technology and core expertise in CRM, marketing and analytics. These strengths, along with the fantastic efforts of our highly skilled and dynamic team, mean that the business is in excellent shape to deliver long term sustainable growth. Trading in Q3 has started well with average daily revenue until 27 August 2016 15 per cent above strong previous year comparatives and 22 per cent higher on a like for like basis. With this strong momentum the Board remains confident of delivering against expectations for the full year.”