Given the secular decline of the online poker industry, Amaya (parent company of PokerStars) will be hard-pressed to double the size of its poker arm in the next five years.
Eilers predictions for Amaya grounded in reality
Eilers has proven to be one of the more sobering (and accurate) voices with regards to online gaming revenue predictions.
Its latest report continues that trend, and not without good reason. The online poker industry is in the midst of a multi-year downswing, attributed partially to the growing skill divide between professional and recreational players and even more so to the shift towards regulation, and subsequently, taxation.
As owner of what was up until recently a company singularly dedicated to online poker, Amaya faces more pressure than the industry’s other top dogs, both to grow its online poker business amid industry decline, and to hedge its bets by expanding into different sectors of the industry. Both models involve significant risk.
With that in mind, Eilers offers a conservative outlook for Amaya:
- 2015 revenue estimates of $1.502 billion (CAD) are more or less in line with consensus estimates.
- Top and bottom revenue estimates for 2016 and 2017 are “meaningfully lower” than those set forth by Street, likely due to Eilers “more subdued online poker outlook and lower growth assumptions for online casino and online sports.”
- Amaya guidance suggests an 8% year-over-year decline for Rational Group’s online poker revenues in 2015.
- Eilers predicts that poker-only revenues will constitute 86% of Rational Group revenues in 2015. That number will dip to 71% by 2017. Along similar lines, poker will grow at a significantly lesser rate than either casino or sports, and even take a small step backwards in 2017.
New and existing markets present varying opportunities
One of the most direct paths to online poker growth is expansion into the Asian market. According to Eilers, “the incredibly large population base and undeniable propensity to gamble by many in this region could lead to a potentially lucrative revenue stream.”
However, before Amaya can fully capitalize on this prospective goldmine, it must overcome several daunting challenges including legitimate regulatory concerns, and unifying what is now a heavily fragmented market.
Eilers estimates indicate that “Russians account for some 15% of the total traffic at PokerStars.com.”
However, PokerStars’ ability to continue profiting off the Russian market in the same matter it does today remains a huge question mark.
In a bull case, PokerStars would achieve further penetration into the Russian market.
In the less impactful of the two bear cases, Russian officials regulate online poker. As per Eilers, that would come at “great cost to Amaya.”
Finally, Eilers suggests that should “Russian officials perceive that online poker / gambling sites are facilitating a material outflow, a crackdown could ensue.”
The United States
As per Eilers, the opportunities in the regulated United States market aren’t nearly as fruitful, with even bullish scenarios seeing the “company losing money in the U.S. market in the near term.”
Eilers offers several rational arguments as the basis of this conclusion:
- Limited financial upside in New Jersey due to the market’s smallish size, its declining online poker revenues and the saturation of the online casino market.
- The unlikelihood that California will launch its first real-money poker site before 2017.
- A lack of short-term opportunities, with Pennsylvania realistically being the only state besides California with a shot of regulating any form of online gambling in 2015.
Key to non-poker success may be in hybridization
Lottery Sit & Goes, known on PokerStars as Spin & Go’s, were by and large the most successful innovation in the online poker realm since the inception of online poker itself.
Part of its success stems from the fact that it effectively bridges the gap between poker and casino gambling, ultimately catering to both recreational gamblers turned off by the prospect of competing against professional players, and seasoned poker players, who are still able to maintain the slightest of edges.
As neatly summed up by Eilers:
Given the fact that only the house wins, the rapidity of play, the lottery element and the high-variance jackpot structure, Spin & Go’s arguably have more in common with a progressive slot machine than a traditional game of texas hold’em.
Arguments as to whether Spin & Go’s more closely resemble casino gambling or poker aside, the format was a financial boon and a powerful marketing device for PokerStars, and future innovations that hybridize traditional poker with a casino or sports betting game could conceivably push Amaya revenue through the roof.
Per Eilers, it may even prove “essential if PokerStars is to break through a crowded market.”