ii view: 888 revenue grows despite tough comparatives

Challenges in the Netherlands but firm strategic progress has been made. We assess prospects.

Third-quarter trading update to 30 September

• Total revenue up 7% year-over-year to $230 million

Chief executive Itai Pazner said:

"Q3 2021 was a period of outstanding strategic progress for 888. During the period we announced the transformational acquisition of William Hill International, successfully launched SI Sportsbook in the US, and began operating 888sport under a new licence in Germany as we continued to execute our plan to build a global online betting and gaming leader.”

ii round-up:

888 Holdings (LSE:888) battled tough year-over-year comparatives in this latest third-quarter trading period following 2020 pandemic lockdowns and reduced leisure possibilities. 

Total revenue growth of 7% is down from 10% achieved in the prior second quarter. A recent withdrawal of services from the Netherlands also offered a negative, with the likely temporary withdrawal expected to impact full-year 2022 adjusted earnings by an approximate $10 million. 

888 shares retreated by around 3% in UK trading having gain by more than 350% since pandemic induced market lows back in March 2020. Shares for rival Entain (LSE:ENT) and Ladbrokes owner have gained by close to 500% in that time. Betfair owner Flutter Entertainment (LSE:FLTR) is up around 125%. 

More broadly, strategic progress continues to be highlighted at 888. The update comes in the wake of its move to buy the non-US operations of the William Hill business including its 1,400 UK betting outlets for £2.2 billion from US owner Caesars Entertainment (NASDAQ:CZR). It also follows an agreed strategic partnership with Sports Illustrated in the US. 

Within its consumer business, gaming revenue grew by 11%, led by its casino gaming. Betting revenue fell 15% compared to the third quarter of 2020 when it benefited from a condensed calendar of sporting events and a strong performance. Revenue for its business-to-business division increased 4% to $9.6 million. 

ii view:

Started in 1997, 888 Holdings today operates across the two divisions of Business to Consumer (B2C) under its 888 brands and Business to Business (B2B) through its Dragonfish division, providing partners a platform from which to build an online gaming presence and monetise their own brands. The B2C division generates most of its sales, with casino products by far its biggest sales generator at close to 70% of 2020 revenues, poker and bingo at 12% and sports betting 14%. 

Geographically, the UK accounts for its biggest slug of sales at just over 40%, Italy as a sole nation is next at around 10%, with Europe, Middle East, and Africa (EMEA) making up for around one third; the US and Americas 11%; and the rest of the world around 2% during 2020.

For investors, developments in the Netherlands offer some caution. Broader industry concerns for responsible gambling and increased government regulation also warrant firm consideration, while comparatives are likely to remain tough given an exit from the peak of pandemic disruption. 

On the upside, its purchase of William Hill operations gives it a famous brand name and expands its exposure in sports betting. It is also expected to enhance adjusted net earnings per share during its first full year following completion. No change in the dividend policy is expected, with a forecast income yield of close to 3% not derisory in an ongoing ultra-low interest rate environment. In all, and given a backdrop of industry consolidation, the shares look to remain worthy of long-term support. 

Positives: 

• A diversity of products and geographical locations
• Net cash position as at 30 June 2021 was $192.9 million

Negatives:

• Government concerns re gambling addiction
• Gaming taxes an easy target for financially stretched Covid-19 hit governments 

The average rating of stock market analysts:

Strong buy