PartyGaming Shares Plummet Despite Strong Financial Results

Remember, investors, stock price is based on future expectations, not past results. Nowhere was this more evident today than with PartyGaming, owner of Party Poker, the internet’s largest poker room.

Even though the company’s first set of financial results since its IPO was impressive, investors did not like an indication it gave for the future, sending PartyGaming shares tumbling 33%, down 51.75p to 105p. PartyGaming pre-tax profits rise 21% and revenue increase 81% in the first six months of the year, but it was the announcement that its anticipated strong growth for the second half will be, “…at rates lower than the substantial rates previously experienced."

PartyGaming’s finance director, Martin Weigold, said, “I think that the rate of moderation of growth in the poker market might be slowing more quickly than anticipated. At this stage it's difficult to know whether the trends that we're seeing in active player days are a blip or part of a longer-term trend.”

Two factors have been pointed to when explaining a possible slowdown for the firm. The first is that ESPN’s broadcast of the 2005 World Series of Poker (WSOP) started a month later than it did for the 2004 event, and thus PartyGaming may have seen fewer new customers in the last couple months as poker newcomers were delayed in feeling the poker buzz that was created from last year’s WSOP. Second, analysts say that casual players are playing less money playing than are the regular, higher-action players.

Despite its success, PartyGaming is still looking to diversify, both on the geographic front and business front, possibly into more non-poker gaming. One indication that casino game expansion is in the works is the firm’s announcement of a deal that will offer customers a chance to play games such as roulette on their mobile phones, with a poker application coming down the road.

The company also plans to grow through acquisition, but has not said whether or not it plans to place a counter-bid for Empire Online, as one of the largest online gaming concerns, Sportingbet (which owns Paradise Poker), confirmed Monday that it is, in fact in talks with Empire for a possible takeover.

Originally published September 6, 2005