Cryptologic Shares Tumble on Betfair Announcement

Gambling software developer, Cryptologic, announced today that one of its poker customers, Betfair, has said that wants to develop its own software in-house, rather than license it from Cryptologic. The news caused the firm’s shares (NASDAQ: CRYP) to tumble approximately 25% at the opening of trading today. The stock closed down 16.62% at $19.91.

Cryptologic said that the loss of this customer, which is not definite at this point, will not affect its financials for 2005, but could have a “material” effect on 2006 earnings if the company cannot replace the lost revenue with growth from other clients.

Internet poker only made up about 30% of Cryptologic’s Q2 2005 revenue, but that segment is growing quickly. 60% of the firm’s revenue is from its online casino software. Betfair is a poker-only client, and one of at least seven large poker customers for Cryptologic. Thus, it can be estimated that the revenue hit would be no more than 9%. While this is not at all insignificant, it seems that the reaction by the market was a bit overblown.

Cryptologic, one of the top five poker rooms on the internet (through its licensing arm, Wagerlogic), will update shareholders once Betfair makes a formal decision.

Originally published August 9, 2005