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Stars Group Earnings Up, Profits Down For 2018

Summary: The Stars Group just concluded their investors call for full year results of fiscal 2018, which shows large growth in revenues but a net loss for the year due to increased costs.

The Stars Group (TSX: TSGI / NASDAQ: TSG) has just concluded their annual investor call about 30 minutes ago which reviewed the companies progress and financial results for the full fiscal year 2018.

There was a lot of anticipation surrounding the call as investors were nervous with the massive investments and acquisitions that the company has made over the last year, including the acquisition of Sky Bet in the UK and Bet Easy in the Australian market.

While the company posted a net loss for the year, there were quite a few positives in the results that show the company is investing in long-term sustainable growth – here are some key facts:

  • Revenue was up Y:Y 54.6% to over $2 Billion
  • Gross profit grew 47.4% Y:Y
  • Stars Group fully repaid their $100 Million revolving line of credit
  • Ended the year with $393 Million in operational cash
  • Kentucky judgment of $870 Million reversed
  • Potential access to 13 US states for regulated sports betting
  • Increasing revenues due to online casino & sports betting segments
  • 80% of revenues comes from licensed jurisdictions (mentioned on call)

While the above are all very positive signs for the company for the long term, the net loss for the full year amounted to $108.9M, representing a 142% drop in net income compared to 2017.

Even with the net loss for the year, it appears that investors have regained some confidence in the companies strategic plans as the stock is up over 15% this morning (at time of publishing).

Commenting on the call, Stars Group CEO Rafael Ashkenazi said:

2018 was a landmark year for the company. We completed the acquisitions of Sky Betting & Gaming in the UK and BetEasy in Australia, extended our licensed footprint to 21 jurisdictions around the world and began laying the foundations to grow our presence in the US.

As we look at 2019 and beyond, 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.

Some of the other challenges mentioned on the investor call included payment processing (particularly in Russia and Norway) as well as iOS removal in certain markets like Brazil.  The company did specify that these are intermittent issues and in some cases have already been resolved in recent weeks.

One segment of the business of key importance for future finances will be the groups expansion into 3 key markets being the US, UK and Australia.  While the US is undergoing regulatory changes we don’t expect the market to have a significant impact on revenues until at least mid to late 2019.

For the UK, it will be interesting to see if the Stars Group can make this segment profitable as multiple rules and regulations setup by the UK Gaming Commission have badly impacted profits on operators across the region.  For 2018, the company reported an operating lost of $51.1M in the region which isn’t great considering the heavy investment made into Sky Bet.

For Australia, there seems to be some potential with $196.9M generated in revenue in 2018. The company still lost money in this market ($35M) but has invested heavily in sales and marketing ($53M) as well as administrative costs ($117M) so there is lots of room for cost cutting and profit building in the years to come.

Overall, our take on the Stars Group is that it will continue to grow both in profits and market dominance over the next few years.  This is a company that really understands the iGaming industry in its’ DNA and with the US market opening we believe it’s positioned to be one of the big players in regulated markets for the future.