Go All-In on Amaya Gaming (AMYGF)

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Three months ago, I wrote about Canadian gaming company Amaya Gaming Group (AMYGF), which had purchased the two biggest online poker brand names around that time, PokerStars and Full Tilt. Amaya Gaming is not your typical gaming stock.

amaya gaming amygf stockI am very high on online poker. Prior to the crackdown by the Justice Department and Congress, online poker was a multibillion-dollar industry in the U.S. and around the world. Now that the legal issues have all been resolved and Amaya owns the platforms, they have begun the journey toward getting online poker legalized in the U.S. and getting licenses for their online platforms.

In the meantime, Amaya Gaming’s core business continues to generate revenue and the poker sites make money internationally with their 89 million registered players. Here’s a look at Q3 results and other news that just came out of Amaya. The amounts are in U.S. dollars, translated from Canadian dollars reported by the company.

  • AMGYF’s quarterly revenue was $210 million, compared to $34 million from a year ago. Year-to-date revenues are $282 million, compared to $96 million last year.
  • Amaya Gaming’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $96 million for the quarter and $121 million for the first nine months, compared to $16 million and $40.5 million for the quarter and first nine months of 2013. This is the metric I’m watching the closest because online poker is all about cash flow to me. I want lots of players putting their money into the games because the margins are fantastic in online poker.
  • AMYGF management said, in fact, that FY14 adjusted EBITDA should be around $242 million.
  • Amaya Gaming’s net earnings from continuing operations increased to $23.25 million, or 14 cents per diluted share, compared to $1.44 million, or 2 cents per share. Year-to-date net income was $68.2 million compared to a $3.7 million loss last year.

All of these numbers are looking good for the company’s first partial quarter that includes the online poker contributions. I can’t wait to see what a full quarter brings.

In the meantime, there is a lot of other news that came out of AMYGF.

Online poker has made a big impression in the mobile world, with more than 50% of PokerStars new customer acquisitions coming via mobile, up from 40% last year.

Both Full Tilt and PokerStars have also added regular casino gaming to their platforms, and we all know the house always wins with casino games. I have no objection to that especially since there are no hotel properties to pour capital expenditures into. Amaya Gaming already owns an online casino business, so the additions were a piece of cake and not terribly expensive. You don’t need gaming stocks with hotels when you have the Internet.

Thirty percent of eligible poker players also threw money away in the casino. The casino will hit the web in addition to mobile next year, as will a sportsbook. AMYGF management thinks that the market for casino and sportsbook offerings combined could be as large as 60% of their poker market.

Online gambling, baby. Please, everyone, visit these casinos and give me my cash flow!

Amaya Gaming is also moving to shed some assets, make a strategic investment here and there, and build out other platforms. It is selling its Ongame B2B poker and platform provider to another gaming group, NYX Gaming Group, for eight times Ongame’s 2015 EBITDA.

However, the Ongame sale also includes a “substantial equity investment” in NYX of about $10 million in convertible notes. So they aren’t giving up entirely on being a platform provider for poker.

AMYGF also announced it is looking to sell its Cadillac Jack subsidiary, which is a gaming machine supplier. The company wants to shed the asset because it is now considered non-core.

Amaya Gaming also is waiting for license approval for online poker in New Jersey, and has joined a coalition of Indian tribes to push for enabling legislation in California.

Bottom Line

I see Amaya Gaming going in the right direction with all of its strategic moves. It is fully committing to online poker. It is generating great cash flow, and there is plenty more on the way. Meanwhile, the casino and sportsbook offerings should enhance revenue internationally while U.S. approval moves along.

I am long and intend to stay long — for a long, long time.

As of this writing, Lawrence Meyers was long AMYGF. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at pdlcapital66@gmail.com and follow his tweets at @ichabodscranium.

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