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Betfair Shares Plummet 22 Percent Post-IPO

Written by:
Alejandro Botticelli
Published on:
Dec/14/2010
Betfair

It was a celebratory mood days following the IPO of Betfair.  The world’s biggest online betting exchange went public back in October.  The starting market capitalization for the company was initially set at £1.4bn.  The share price was £13.

"We believe we have many opportunities to grow our leading position in the online sports betting and gaming market and we are extremely pleased that new investors share our enthusiasm for the future of the business," Chief Executive David Yu said at the time.

Many suggested this could be the start of a new trend where more and more companies were likely to go public.  Indeed, since the Betfair IPO other private businesses are preparing to go public including three in Gambling911.com’s stomping grounds of South Florida, Spirit Airlines, Bank United and EverBank Financial Corp.

But Betfair’s share price has since plummeted by 22 percent in just 7 weeks.

 

From the Wall Street Journal:

It was bad enough that Betfair missed consensus estimates so soon after the float, which it largely blamed on one-off costs associated with the IPO. But more alarming was news that Betfair is facing challenges in the core online betting exchange business, including its first quarterly decline in horse-racing turnover, the business which last year accounted for more than one-third of core revenues.

After a strong first quarter buoyed by the World Cup soccer tournament, revenues from Betfair's core betting business grew just 1.6% in the second quarter. Betfair blames the decline in horse-racing on punters switching to other sports, such as soccer. It also blames poor weather conditions. Meanwhile, Betfair's new Ongame poker platform isn't performing as well as anticipated: Although the number of active customers rose 9.8% in the second quarter, it has failed to lure some of the highest rollers, leading to a 15.8% decline in revenues. That is worrying, given the importance of liquidity in attracting high-spending players.

 

 

Disgraced in Recent Weeks:  Online Gambling Communities Fury

 

A few weeks back, Gambling911.com published a story regarding a Betfair bonus promotion which the company later refused to honor.  Some player accounts were even shut down.

The November 13 promo promised to reward players a 50 percent bonus by transferring money to their casino.  A 10 time rollover (betting the amount transferred a minimum of 10 times) was required before the bonus could be claimed.

A spokesperson for the website SBR Forum said: “If you play Casino Hold ‘Em, which has about a 2 percent edge, you would expect to lose 20 percent of your transfer and still be up 30 percent on your bonus.  Not surprisingly, a lot of players used this ‘player-friendly’ promotion.”

But once Betfair realized they were essentially “giving the shop away”, the company began locking players accounts.

They also changed the terms of the bonus promotion long after it had already begun.  A “before and after” terms screenshot is displayed at the 2:30 mark of the video.

 

Not All Gloom and Doom

 

As the Wall Street Journal points out, even after the latest share price fall, Betfair is still valued at 25.6 times 2011 forecast earnings, based on Morgan Stanley estimates, a massive premium to other online gaming stocks.

Shareholders are also waiting with bated breath to see if Senate Majority Leader Harry Reid can push through a measure that would legalize online poker in the United States, thus opening the lucrative market up for Betfair.

- Alejandro Botticelli, Gambling911.com

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