The Stars Group Revenues Soar By 74% To $572m in Q3

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The Stars Group (TSG) saw its third quarter revenue soar to US$572 million for the three months ending September 30, representing an incredible 73.6% year-on-year gain for the company. Although its poker product noted an almost 4% year-on-year slide to $213 million in Q3, the game is becoming increasingly less important for the firm’s finances, and commenting upon the result, CEO Rafi Ashkenazi stated:

“This was a landmark quarter during a transformative year for the company as we begin to deliver on our vision to become the world’s favorite iGaming destination.”

While adjusted earnings were higher by 27.3% at $198.2 million, operating income, on the other hand, plummeted by 40.3% to $70.9 million. The Stars Group net earnings subsequently fell by 87.2% to $9.7 million.

What Accounts For TSG’s Revenue Surge

Accounting for TSG’s revenue surge was contributions from a number of acquisitions this year. This includes several Australian online betting brands, as well as the purchase of UK internet betting firm Sky Betting & Gaming (SBG). Together, these generated an additional $220 million for TSG, meaning its organic revenue was actually higher by 7% at $351 million, and its adjusted earnings up by 12% to $175 million.

Overall, the company produced impressive results from its online casino and sports betting products. While TSG’s online casino revenue improved by 29% to $108 million, BetStars revenues skyrocketed by 80% year-on-year to $21 million. In addition to its new market launches, Stars pointed towards product improvement and innovations for its gains, as well as the 2018 FIFA World Cup.

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How Did PokerStars Fare in Q3?

PokerStars is online poker’s preeminent brand, with its dot-com and European room traffic ranked first and third in the world respectively. Despite its dominant position, however, the brand saw its poker revenues actually contract by 3.9% in Q3. In an investor call, Ashkenazi blamed regulatory challenges in a number of key markets for the lackluster result, an in particular its withdrawal from Australia.

In the meantime, PokerStars highlighted the priority it places on its recreational model, and the continuing need to further clampdown on third-party software “that may provide an artificial competitive advantage for certain poker customers over others.” A statement further stated that the site’s overall poker ecosystem has been improved by adjusting poker game and tournament prices, as well as implementing a VIP program that attracts “high-value, net depositing customers (primarily recreational players) and reduces incentives for high-volume, net-withdrawing customers.”

Nevertheless, poker has seen its proportion of The Stars Group’s overall revenues fall from a 63% share before the acquisition of Sky Betting & Gaming (SBG) to a 36% share in the third quarter of 2018. At the same time, sports betting has rocketed from a 5% share to a 32% slice of the pie, making it now almost on par with poker revenues. Casino games subsequently account for the remaining 28% of revenue, making TSG a truly diversified gambling company these days.

Sports Betting Looms Large

Needless to say, sports betting has become a major driver of the company’s growth, while poker is increasingly being used as a “large and low-cost customer acquisition channel,” according to Chief Financial Officer Brian Kyle. On the analyst call, Ashkenazi even said that the company handles around $2.5 billion in sports wagers each quarter, and that a one-point change in betting margins can impact the company’s returns by as much as $25 million.

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Going forward, TSG say it’s looking forward to expanding its sports betting operation in other attractive markets, with the recent state-regulated US sports betting expansion representing one of its best opportunities for sustainable growth.

“We operate in attractive markets with high potential growth rates. We believe we can replicate our success in new markets as they open up,” explained Ashkenazi.