The Bwin.party (BPTY.L) share price has dropped 10% from the start of trading on Monday, May 20th to the close of trading on Friday, May 24th. The first quarter of 2013 saw a decrease in revenues of 17% for the online gaming giant. At the time of writing, the share price was 131.40 down from 146.00 at the start of the week.
Is this just a temporary setback or have too many factors changed in the world of real money online gaming?
While waiting for regulation to be implemented in the US, has the regulation in Europe been too tough for the online gaming operator?
In the midst of this, there is still no grand announcements of the new product launch which was a result of the joint venture between Bwin.party (BPTY.L) and Zynga (NASDAQ:ZNGA).
There are currently three major factors affecting the performance and subsequent share price:
1. Abiding to the regulation laid down in territories where gaming is legal while effectively marketing the product to new players and retaining existing players.
2. The law in the US has yet to be finalized despite much speculation.
3. The success of the joint venture with Zynga.
The legal playing field has certainly narrowed for many gaming operators. In a recent announcement, Bwin.party have declared a cut in its operation in order to focus on territories where regulation is clear. This rules out the potential to market its gaming products to approximately 20 countries where the gaming laws are simply too unclear to navigate.
Before the Bwin merger with Party Gaming, sports betting was the company's core business. However, wagering on sports events in Germany, one of Bwin's biggest markets, fell by 52% leading to a 31% fall in the amount of wagering to €749.2m year-on-year. A new 5% 'turnover tax in Germany has also lowered the net profits.
Bwin.party are now gearing up to launch a number of branded solutions in New Jersey once the US market opens up. However, the US market place will be hugely competitive. The brand name of Bwin.party will be going head-to-head with the likes of MGM and other known, land based casinos. Ten years ago, Party Poker was a big brand in the US. This was mainly due to its sponsorship deal with WPT. Will the US market still remember the name of Party Poker since their doors closed to the US market almost seven years ago?
On May 21st, Bwin.party made transactions in which the company bought its own shares. Could this be the start of a management buy-back?
In April, Zynga shares rose 15% on the back of the awaited launch of ZyngaPlusPoker and ZyngaPlusCasino in the UK. This was the resultant product of the Bwin.party, Zynga joint venture. Despite the hype of being the first social real money gaming application to be launched by Zynga, it became known after launch that these products are only available via download from the Zynga website. The launch date on Facebook is still unknown.
In short, Bwin.party shares will probably continue to fall based on current performance. Once a product is launched in the US, it is likely expected for the shares to rise just based on the speculation alone.
The fundamental analysis based on a large reported loss in quarter one of 2013 is largely reflected by the dip in share price. The additional element of being in an industry which is heavily affected by ongoing regulation and taxation, also gives way for a fair amount of uncertainty regarding the future of the company.
Since the online gaming industry came under the scrutiny of regulators, the industry has suffered. Whether or not regulators will ease up to allow the business, specifically the marketing aspects, to recover will only unravel as time continues.
There also seems to be large comparisons between the Binary Options industry of 2013 and the online gaming industry of 2006. There are currently very few fully regulated binary options brokers in the US and little regulation in place to govern the industry. Many gaming operators are looking at adding Binary Options Platforms to their portfolio. If Bwin.party were to add this and become regulated in the US, there could be a much awaited change in fortune for the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.