PartyGaming Bounces Back After UIGEA

PartyGaming released a scheduled trading update late last week which brought good news to shareholders of the beleaguered company.

Following the Senate approval of the Unlawful Internet Gambling Enforcement Act (UIGEA), PartyGaming (parent company of Party Casino and Party Poker) was one of the publicly listed gambling companies to quickly withdraw from the US market, rather than wait for clarification of the long-term effects of the controversial bill.

Their decision to withdraw from the US market, which accounted for up to 70% or more of their customer base, was not greeted warmly by investors, with the London Stock Exchange listed company having around 75% of its value wiped out within days. It's share price dropped from around 120p to 30p, signaling what many thought might be the end of the gambling giant, as the drastically lowered share price left the company vulnerable to takeover.

In the days before the recent trading update, the share price dropped under 26p, as investors feared the upcoming report on activities post-UIGEA would not include good news. However, the report was surprisingly optimistic, showing PartyPoker has bounced back in a strong way following their post-UIGEA meltdown.

The company generated over $25 million in revenues in the month preceding the trading report, with CEO Mitch Garber describing the UIGEA as "blow to (the) business…but our group has absorbed and now recovered from this incident". He went on to say that PartyPoker is no longer a poker-led, US-dependant company, but instead now a multi-lingual, multi-currency, global company.

Garber refused to speculate on short-term future prospects for PartyPoker, but said the group will continue to look for merger and acquisition opportunities. PartyPoker was believed to be interested in acquiring fellow online gambling company 888 Holdings, which was also hit hard by their decision to withdraw from the US market. However, there have been recent reports that Ladbrokes is about to finalize a deal to buy 888, leaving PartyPoker looking for new opportunities. They successfully bought GameBookers earlier this year.

The other interesting news from the PartyGaming CEO relates to the company's marketing strategies for 2007 and beyond. PartyGaming rapidly became the largest online gambling company in the world when they floated on the LSE last year, primarily due to their innovative marketing campaigns, which were designed to reward affiliates for new players referred to the site. Before long, almost every online poker room and online casino released affiliate programs similar to the PartyPoker model. Garber hinted that the PartyPoker marketing department had some new, innovative ideas involving the YouTube phenomenon, but declined to clarify exactly what the new marketing campaigns would entail.

PartyGaming's share price was hit last week after news that the giant US land gambling group Las Vegas Sands was entering the online market. Garber was in agreement with many industry experts that involvement by Las Vegas Sands in online gambling would only help the industry overall in the long-term, and did not see their recent actions as a serious threat to his company: "They are setting themselves up for a large online presence in the future…I would guess that they also see their presence in Macau and soon in Singapore as a launching pad to have a strong Asian Internet presence as well. Clearly there are opportunities in markets that have yet to be tapped, and I think Las Vegas Sands is probably thinking about that, and I think that quite frankly we'll get there first."

An old poker professional once told me that the difference between champion players and good players was how quickly champion players bounced back following major setbacks. If there is any truth to that logic, PartyGaming is looking more and more like a champion of the online gambling industry.

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