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Investors putting wagers on CryptoLogic
Toronto-based online gambling software firm gets more than 15% of income from Internet poker: Q3 earnings up 32%
Mark Evans
Financial Post; [email protected]November 6, 2004
CryptoLogic Inc. should give poker players Chris Moneymaker and Greg Raymer some credit for its better than expected third-quarter results and renewed interest from investors.
The company, which makes online gambling software, had its performance buoyed by the growing popularity of online poker. CryptoLogic is making more than 15% of its revenue from poker after its fees from the game tripled from a year earlier and jumped 55% from the second-quarter.
“Online poker is the fastest-growing segment in the history of interactive gaming, and CryptoLogic has a great seat at the winning table,” said Lewis Rose, the company’s president and chief executive, during a conference call yesterday.
Messrs. Moneymaker and Raymer are playing a key part in CryptoLogic’s success because they qualified for the World Series of Poker by playing online at a Web site called Pokerstars.com. Mr. Moneymaker took home US$2.5-million when he won the 2003 tournament, while Mr. Raymer walked away with US$5-million when he won the 2004 tournament.
The World Series of Poker has become a television ratings success, with close to two million people watching on ESPN. Its popularity has made stars out of the better-known players, and spawned TV spin-offs like the Celebrity Poker Showdown, in which people like actor Ben Affleck compete for $250,000 in a no-limit game of a type of poker called Texas hold’em.
Online poker houses are expected to bring in revenue of US$1.5-billion this year, compared with US$100-million in 2002. The amount gambled on online poker will be more than US$30-billion.
David Shore, an analyst with Desjardins Securities, said CryptoLogic will see strong growth as more people start to play online poker, particularly in Europe where CryptoLogic has technology licensing deals with several large gambling sites.
The business, he said, could receive a boost if Las Vegas casinos get into the market, which may happen if a gambling bill in the U.K. receives approval.
Las Vegas casinos “could set up shop for U.K. bettor to get into the online business,” Mr. Shore said. “Why do it yourself if you can go with someone like CryptoLogic, and do it with not much online investment.”
Toronto-based CryptoLogic said third-quarter earnings climbed 32% to US$2.9-million, or US21 cents a share, from US$2.2-million, or US17 cents, a year earlier. Revenue rose 43% to US$15.6-million. Mr. Shore said he was expected EPS of US14 cents on revenue of US$14.4-million.
CryptoLogic shares jumped $2.13, or 11%, to $22.07 in Toronto. Some of the interest may be due to Sportingbet PLC’s US$297.5-million acquisition last week of ParadisePoker.com.
Mr. Rose said the deal is positive for the online gambling industry because it will raise CryptoLogic’s profile and highlight its under-valuation.
The wildcard for online gambling is the industry’s uncertain legal status in the U.S. In some states, it is not permitted, while major credit card companies refuse to process online gambling transactions. The U.S. Justice Department maintains all online bets are illegal because they involve transactions that cross state lines.
© National Post 2004
