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Stars Group’s M&A activity drives revenue up to $572m

| By iGB Editorial Team
PokerStars operator finalised acquisition of Sky Betting & Gaming in July

The Stars Group has cited its acquisition of Sky Betting & Gaming as the driving force behind a 74% year-on-year increase in revenue during what CEO Rafi Ashkenazi said was a “landmark” quarter for the company.

Total revenue was $572m (£434.8m/€498.3m) in the third quarter, while gross profit also rocketed 66% from $267m to $442.8m.

Adjusted EBITDA for the three months to the end of September amounted to $198.3m, up 27% on the corresponding period in the previous year, but net earnings dropped 87% to €9.7m.

Reflecting on the results, Ashkenazi (pictured) said: “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 favourite iGaming destination.

“We completed our acquisition of Sky Betting & Gaming, which was cleared by the CMA in October, making us the leader in the UK online betting and gaming market. We also launched BetEasy in Australia and sports betting in New Jersey.”

“We are pleased with our quarterly results, which reflect both continued organic growth from our International business and contributions from both BetEasy and Sky Betting & Gaming, despite unfavourable sporting results during the period.

“As we continue our transformation and look towards 2019, we are excited to take advantage of the opportunities ahead of us by leveraging our leading positions in attractive markets, strong brands, technology and operating expertise.”

Ashkenazi expanded on this in an investor call, picking out a number of key markets where Stars hopes to grow during 2019. These include Pennsylvania, where the firm has applied for a licence ahead of an expected launch across all verticals next year.

Stars is also seeking to build on its early success in New Jersey, as well as take advantage of re-regulation in Sweden, where it has also applied for a licence ahead of relaunch in January.

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

Brian Kyle, who was appointed chief financial officer at Stars last May, built on this to say that the company has a number of strategies in place to help it cope with regulatory changes in markets around the world.

Kyle cited the increase of remote gaming duty in the UK from 15% to 21% as one of these challenges, saying that Stars expects EBITDA to be hit by £30m before mitigation.

However, analysts from Regulus also gave their opinion on the third-quarter performance, suggesting Stars had “learnt the hard way” that sports betting is more volatile than gaming.

Regulus noted a cumulative impact of $40m from poor results in the UK and Australia, and with a tough Q4 expected, it is “unlikely” a strong growth pro-forma growth profile will emerge until 2019.

Analysts also said Stars is facing “tough but well understood fiscal-regulatory headwinds” in its three key POC markets of the UK, Australia and Italy, while continuing to support a material .com tail, particularly in Russia and Germany.

However, given Stars’ decision to pivot into “proven mass markets” and gain scale in sports betting, the company “has the capability to deliver sustainable growth”.

Regulus said: “We believe the key test for the group now is to transform a series of highly distinctive businesses into a cohesive whole, without (unnecessarily) undermining the culture or cash flow of any of the core constituent parts.

“This challenge should not be underestimated, but it is a much better problem to have than a heavily indebted .com business reliant on a declining core product.”

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