Interactive Investor

ii view: 888's record revenue fails to stop share slide

The final quarter was tough, but its purchase of William Hill's bookies completes soon. Buy, sell, hold?

18th January 2022 15:16

Keith Bowman from interactive investor

The final quarter was tough, but its purchase of William Hill's UK bookies is soon to complete. Buy, sell or hold? 

Fourth-quarter and full-year trading update to 31 December

  • Fourth-quarter revenue down 16% year-over-year to $214 million
  • Full-year revenue up 14% to $972 million

Chief executive Itai Pazner said:

"2021 was a year of outstanding strategic progress for 888 as we announced the transformational acquisition of William Hill International, and reached an agreement to sell our bingo business to increase our focus on our B2C and US growth plans, as we continue to execute our plan to build a global online betting and gaming leader.”

ii round-up:

Online betting and gaming company 888 Holdings (LSE:888) today reported another year of record revenues, aided by strong performances in the UK and Italy and continued expansion in regulated markets. Total revenue for the year rose 14% to $972 million. 

But revenues for the last quarter declined by 16% to $214 million, as the business battled tough comparatives following 2020 pandemic lockdowns and reduced leisure possibilities, plus a withdrawal from the Netherlands following regulatory changes. 

888 shares retreated by more than 2% in UK trading, having gained by more than 200% since pandemic market lows in March 2020. Shares for former DraftKing's (NASDAQ:DKNG) bid target Entain (LSE:ENT) and owner of Ladbrokes have gained by over 350% in that time, while Betfair owner Flutter Entertainment (LSE:FLTR) is up around 70%.

Within the gaming sector’s merger and acquisition activity during 2021, 888’s own purchase of William Hill International is expected to complete in the second quarter of 2022. The £2.2 billion acquisition of the bookmaker’s non-US operations from Caesars Entertainment includes its 1,400 William Hill branded high street betting shops. 

The year also saw 888 begin a strategic partnership with Sports Illustrated. Management flagged positive initial progress following its launch in Colorado, although required upfront investment in promotions to drive customer activity had caused some counterbalance. Further state launches are expected during 2022. 

Annual results are expected in March. 

ii view:

888 Holdings 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, broader industry concerns for responsible gambling and increased government regulation warrant firm consideration. Stretched government finances globally could also see taxes rise.   

More favourably, 888's 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 the first full year following completion. A forecast income yield of around 4% is also not derisory in an ongoing era of ultra-low interest rates. In all, and given both a backdrop of industry consolidation plus a near-50% decline in the share price since September, investors might want to watch this one closely. That said, the shares have failed to find a floor so far, so tread carefully. 

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  

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.