The Stars Group Touts 2018 Growth with Online Poker as Side Note
The Stars Group was built on poker. PokerStars became the largest online poker operator in the world as a result of the poker boom, and its smart business moves during the golden age of poker put the company in a position to dominate for many years. The Stars Group could not have been molded and formed without the success of PokerStars.
Of course, the poker boom fizzled years ago, and the industry has had its share of struggles since. The desire of various governments to regulate online poker or prohibit it, all while finding ways to profit from those actions, put companies like PokerStars in a precarious position. While some companies went rogue and remained offshore and unfettered, PokerStars spent the money to work with governments to obtain licenses, abide by various laws, and even soak up failing companies along the way. As a public company, The Stars Group had little choice but to take this route, but its actions throughout have been notable nonetheless.
But business is business. The Stars Group must grow and expand and find its place in the larger world of online gambling.
Some argue that PokerStars has abandoned the players that helped build the company, that a company that relied upon a game of skill to grow into a world leader has reduced much of its business model to a casino game-like slot machine spin. Others contend that PokerStars has made changes to survive and attract more recreational players but still remains the online poker hub for most players.
These debates will undoubtedly continue, especially when The Stars Group releases financials that show poker becoming an increasingly smaller part of the overall company picture while much focus is placed on sports betting and other, more profitable verticals.
One-Third Poker
In 2017, the poker segment comprised approximately 65% of The Stars Group overall revenue. But in 2018, poker was listed as 35% of the overall picture, only slightly higher than the 32% attributed to sports betting and 30% to online casino games.
While the online poker vertical did grow by 1.1% to $886.6 million for the full year of 2018, the fourth quarter alone showed a 10% decrease year-on-year. The first quarters of 2019 will ultimately show whether online poker is on a steady decrease for PokerStars or can still grow with The Stars Group’s other verticals.
Q4 wasn't great for @PokerStars (poker revenue down 4.4% on a constant currency basis), but poker was still up slightly for 2018. TSG pointed to restrictions on payment processing, marketing and app store availability as the main culprits. https://t.co/PZj5GwoTa0
— Michael Gentile (@SpookyBugs) March 7, 2019
The Stars Group reported that the slight annual increase for poker was in line with expectations and “showed overall resiliency against continued headwinds,” to which The Stars Group attributed the fourth quarter downswing. The company noted that part of the negative poker trend was due to the cross-promotion of the online casino offerings, which benefited, but online poker liquidity in Europe kept the vertical afloat.
Poker did factor into a huge positive for The Stars Group in its overall 2018 financials as it pertained to the long-running Kentucky court case involving PokerStars. In December, the Kentucky Court of Appeals ruled for PokerStars and reversed the massive $870 million judgement for the Commonwealth of Kentucky. The case could be revived if the Kentucky Supreme Court decides to hear the appeal from the state, but PokerStars unequivocally took the win for the end of 2018.
Group Wins
Poker aside, The Stars Group had a stellar year in 2018 and looks to continue that trend into 2019.
For the full year of 2018, revenue was up to $2.03 billion, a 54.6% increase year-on-year. Gross profit was up 47%. Adjusted earnings were up 30% to $781 million, though there was a net loss of $108.9 million for the year. But overall, the numbers were impressive enough to send shares of The Stars Group up more than 12% the following day to more than $18 per share.
https://twitter.com/execsummary2018/status/1103331414492164096
According to The Stars Group CEO Rafi Ashkenazi, “2018 was a landmark year for the company. We completed the acquisitions of Sky Betting & Gaming in the UK and BetEasy in Australia, extended our licensed footprint to 21 jurisdictions around the world and began laying the foundations to grow our presence in the US.”
Further, Ashkenazi touted strong organic growth for international business “despite restrictions in certain markets and lapping the initial roll-out of our Stars Rewards program.”
Less Poker in 2019
The placement of poker on the back burner for The Stars Group is not new. When the company reported its third quarter earnings in 2018, the earnings call came with a statement from CFO Brian Kyle that PokerStars was mostly a “large and low-cost customer acquisition channel.”
Ouch.
PokerStars does remain a solid third of The Stars Group overall revenue chain, at least for 2018, and though that percentage may dip somewhat in 2019, poker does remain a core part of the company. It may not hold the importance that it once did or feel like a priority to all PokerStars players, but it will always be a part of its foundation.
