The gaming and gambling industry today is thriving. Worldwide, people are traveling to casinos not only for the chance of cashing in on some lucky hand or hitting the ultimate triple sevens, but for the pure excitement and entertainment value. That is why the gaming industry is enjoying a sweet ride today. According to a recent ReportLinker report, the global industry for casinos and gaming holds down a current net worth of over $125 billion and the global online gambling industry is one of the biggest and most rapidly expanding markets with a net worth of $30 billion. It is no wonder that the companies providing the infrastructure that make up the gaming and gambling markets are doing so well. These are the companies that would serve the investor well to get on board today to enjoy a profitable run.
A recent Research and Markets report stated that roughly 51% of the world's population takes part in some form of gambling every year, thus signifying obvious financial benefits from online gambling websites. In 2012, European online gambling business operators recorded almost a 45% increase in the total online gambling yield. And it is not just the US and Europe that is enjoying the fun. Since early 2008, the center of the casinos and gaming has gradually shifted from Las Vegas and Atlantic City to Macau in China. This shift of the industry's activities to Asia is expected to continue and more openings are expected in other parts of Asia in the near term. Currently in the US, the online gambling industry only accounts for 11% of the global market, but is expected to increase to 30% by the end of 2015.
One of the crucial indicators of the health of an industry is how the industry affects the community at large. In the US, direct economic output by the gaming equipment manufacturing and technology sector rose to $13.0 billion in 2012, which was at an all-time high and 5.7 percent increase compared to 2011 figures. Approximately 31,200 workers were directly employed in the sector during 2012, earning $2.3 billion in salaries and wages. The employment figure increased by 3.0 percent compared to 2011 figures, and the earnings number increased 4.6 percent.
Companies That Make it Happen
Here are a few companies making a huge impact in the gaming and gambling industry and that I believe should be significant additions to any investor's portfolio:
Wynn Resorts, Ltd. (WYNN), together with its subsidiaries, engages in the development, ownership, and operation of destination casino resorts. The company owns and operates two casino resort complexes in Las Vegas, the Wynn Las Vegas and Encore at Wynn Las Vegas with two hotel towers with a total of 4,750 hotel rooms, suites, and villas; 240 table games; 2,195 slot machines; a race and sports book; and one poker room in approximately 186,000 square feet of casino gaming space. The company is still raking it in as its third quarter report reveals. Net revenues for the third quarter of 2013 were $1,390.1 million, compared to $1,298.5 million in the third quarter of 2012. The increase was driven by a 9.6% revenue increase from the company's Macau operations and 1.1% higher revenues from its Las Vegas operations. Adjusted property EBITDA was $435.6 million for the third quarter of 2013, an 8.2% increase from $402.6 million in the third quarter of 2012.
Wynn Resorts' total cash and investments balance at September 30, 2013 was $2.7 billion. Total debt outstanding at the end of the quarter was $6.2 billion, including $3.4 billion of Wynn Las Vegas debt, $947.8 million of Wynn Macau debt and $1.9 billion at the parent company. Subsequent to the end of the 2013 third quarter, Wynn Macau, Limited issued $600.0 million of new 5.25% senior notes due in 2021. Even with significant dept still on the books, free cash flow at Wynn Resorts topped $720 million in the first half of this year, more than twice reported net income. If the company keeps that up for the rest of the year, the stock's 27 P/E ratio could translate into a price-to-free cash flow ratio less than half that, creating a cheaper stock price as well as a great time for buying. With its expansion into Asia and its ever-profitable Las Vegas locations, the company remains a mainstay in the world of gambling. Additionally, Wynn Resorts recently decided to partner with 888 Holdings Public Limited Company (GM:EIHDF), one of Europe's largest online gambling operators, to grab a piece of this $7.4 billion market.
Wynn Resorts' stock currently trades at $161.60, which I believe is a bargain buy to make now.
Killing bad guys and weird looking creatures is popular today and that is why Electronic Arts, Inc. (EA) is doing so well. The company develops and markets, publishes, and distributes game software content and services for video game consoles, personal computers, mobile phones, tablets and electronic readers, and the Internet. It provides games, and related content and services under the EA brand in various categories, including action-adventure, role playing, racing, and first-person shooter games. The company has an extremely loyal following of fans that eagerly await the next release. One such release that is showing a positive as well as profitable response is the Titanfall release. It is supposed to be just as successful as the Call of Duty was which was phenomenally successful.
Electronic Arts EA expects to generate third quarter of fiscal 2014 non-GAAP revenues of approximately $1.65 billion. The company expects non-GAAP earnings to be $1.22 per share. The company recently made some cuts to costs and created more disciplined marketing spending, which declined by $55 million compared to the year ago period, and a $23 million reduction in research & development expenditures. Electronics Arts is aggressively moving into the lucrative mobile gaming market and is planning releasing 15 new mobile games next year. The company saw a record 15 million downloads of its release of Plants vs. Zombies 2 on iOS. Given the brand's popularity and future potential with new releases, I see Electronic Arts as a good buy for the long term.
William Hill (OTCPK:WIMHY) is the UK's leading bookmaker and one of the most recognized and trusted brands in the gambling industry, providing gaming and betting services across multiple channels including online, and over the phone. The company has been listed on the London Stock Exchange since 2002 and employs over 15,000 people in the UK, Gibraltar, Israel and Bulgaria. Founded in 1934, William Hill started out as a postal and telephone betting service where a "punter" would send a bet with a check weeks in advance of an event. Today the company is the largest UK operator of betting shops, with over 2,390 shops representing around 26% of the market.
William Hill's business is comprised of two divisions: highly cash generative retail operations in the UK, and the rapidly growing William Hill Online operation. The company acquired three US Sportsbook operators in July 2012, giving the company a leading position in land-based sports betting in the US. The company's online division was established in December 2008 with the combination of William Hill's sports betting-led interactive business and certain gaming assets acquired from Playtech Limited. William Hill Online also manages the telephone division which was relocated to Gibraltar in February 2011. The online division has consistently delivered strong net revenue and profit growth since it was formed, and now accounts for 32% of the total company's net revenue and 40% of the company's profit. In pursuing William Hill's strategy to develop the online business to increase exposure to international regulated markets, the company acquired Sportingbet's Australian and Spanish businesses in March 2013, laying the foundations for growth in the attractive Asutralian market.
The Group also owns and operates two greyhound stadia in Sunderland and Newcastle in the UK.
William Hill has a market cap of £3,550 million, and is currently trading at $362.20. The company earned about 59% of its operating profit from traditional, retail betting shops in the UK, and the rest from online trading. The company's adjusted earnings covered last year's dividend around 2.6 times; net debt is running at around 2.4 times the level of operating profit, and earnings' growth and yield expectations supported a forward 13. The company is aggressively looking to improve on its online gambling services taking steps to create a more realistic experience with the recent partnership with augmented reality software platform maker, Infinity Augmented Reality (OTCQB:ALSO). This marriage is said to generate increased revenue from online gambling and catapult both companies to new profit heights. I see William Hill as a definite buy now to hold for a long time.
Infinity Augmented Reality
The above mentioned partnership with William Hill serves as a springboard for Infinity Augmented Reality as the company will provide a realistic gaming experience for the online gambling giant. Infinity AR provides the "brain" for wearable computers such as eyewear, smartwatches, and other digital devices. The company is the first augmented reality software platform to connect universally with digital eyewear, tablets and other devices creating an experience unlike any other.
William Hill is extremely interested in the augmented technology that Infinity AR develops. The company is excited about reaching an even larger audience to provide instant gratification to the customer by taking the gaming experience directly to the user of Infinity AR's technology. Infinity AR's augmented reality technology allows the player of online poker to experience the game on a new level. Using the company's 360˚ camera technology, the user can sit at the table with other players and be dealt a hand as if he were there. This technology allows the user to play poker at places like the Bellagio or the Venetian without leaving his living room. This is a disruptive technology that will bring online gambling to the masses delivering an experience never imagined before. The excitement surrounding the partnership with William Hill is creating a surge of momentum for both companies.
While Infinity AR may be viewed as a company poised well for speculative investors who are willing to take a risk betting on the increasing demand for this form of entertainment. Though an over-the-counter stock, which typically entails great risk, there is an also greater reward awaiting the wise investor. The company has a market cap of $35.98 million and the stock is currently trading at $.38. However, neither figure reveals the true potential of the company going forward. The recent partnership with William Hill is sure to ignite a sharp increase in the price per share as Infinity AR enters this market in addition to several other industry partnerships in the works.
The gaming and gambling industry is here to stay and to continue growing stronger over at least the next decade. Gambling as we know it, at least online gambling, is going through a remarkable transformation period under the influence of augmented reality technology. Investors getting on board now with companies embracing as well as supplying this incredible technology will be glad they did. The companies listed here make up a great hand that can be played with seriousness about making a great return on your investment. I recommend snatching up all of them to add a well-rounded snapshot of the gaming and gambling industry to your portfolio.