CryptoLogic Limited (USA) (NASDAQ:CRYP.DL)

CAPS Rating: No stars

The Company through its subsidiaries, engages in the development and supply of online gaming software worldwide.


Player Avatar NetscribeGames (62.36) Submitted: 12/11/2006 8:11:14 AM : Underperform Start Price: $18.49 CRYP.DL Score: +79.23

A Big Gamble

CryptoLogic, Inc. is a software and service provider of online games, providing software mainly on internet casino and poker based games to top online gaming operators like William Hill and Betfair. The company also provides licenses and services to third party operators through its wholly owned subsidiary WaterLogic Ltd.

The Toronto-based company has the largest poker network, with a client base of 2.4 million. The company focuses on diverse markets, with non U.S. markets contributing 70% to the company’s overall revenue. Moreover, casino-based games contribute more than half of the company’s revenue.

The internet gaming market is expected to witness a huge growth, as the current $12 billion market is projected to rise to $19.6 billion by 2010. However, the new U.S. laws banning online gambling will have significant effects on the estimates. Nevertheless, rising internet penetration in Asia and massive growth in Europe will be effective in offsetting the U.S. decline in the long run.

The company from the current quarter has started witnessing the impact of the U.S. ban. Its 30% revenues were dependent on the U.S. market, and banning of online gambling has led to loss of that revenue along with loss of licensing from major accounts like BetFair, which alone contributed 5%-10% to CryptoLogic’s tally. The company’s new customers, Betsafe and Playboy, though having good prospects in the future, will not be enough to counteract the loss of the U.S. market.

In addition, the company’s margins have recently taken a drop, and are expected to continue to decline, as huge fixed operating cost structure will persist for the new reduced target market. With high cash per share, zero debt, and good performance shown in the past, CryptoLogic looks financially strong. Despite the fact that the company’s recent plans to repurchase 1.4 million shares will provide a temporary relief, but loss of such a huge market is too much of a toll, since it will surely have its negative effects on the company in a short term.

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Member Avatar NetscribeGames (62.36) Submitted: 4/16/2007 4:18:01 AM
Recs: 2

Cryptologic released its fourth quarter earning ended 31 December 2006. As anticipated the revenues have fallen to $19 million from $25.1 million, primarily led by U.S. government passing the Unlawful Internet Gambling Enforcement Act into law on Oct. 13, which has effectively banned online gambling in the U.S. The profits of the company also took a slide by whopping 70% to $1.7 million, while margins faced the brunt of the negative impact. However the company’s stock has actually witnessed a growing trend, rising about 25% in just matter of three months. This rise can also be attributed to the recent decision of European Court of Justice, the legal arm of the European Union (EU), giving the online poker and gambling sites rights to market their products and services throughout the of EU member nations. This can be seen as a positive sign for the company to expand in the sturdy growing European market.Cryptologic also appears to be cracking various important long term deals. Like the recent three-year contract to provide online poker and casino software to Holland Casino, a casino operator in the Netherlands. While the recent extension of contract with Marvel Entertainment till 2010, will aid the company to deliver popular content in the gaming arena.Looking ahead in 2007, the company appears to take the challenging environment to its stride, concentration on the European and Asian markets. It has launched five new customer sites since December, while three more are expected to emerge soon that includes the venture with Playboy. More importantly with award winning Casino software to its credit, the long term outlook sure looks appealing. Still as this will be the first fiscal year for the company with the U.S. ban in place and the likely prohibition of gambling transfers outside the U.S., such a strong price rise doesn’t seem justified even if the argument of modest valuation is considered. Thus making it a speculative stock for a short term investor, and will be better for a risk averse investor to stay away from Cryptologic in 2007.

Member Avatar kriley0923 (< 20) Submitted: 5/10/2007 2:32:12 PM
Recs: 0

Good write up. Hopefully, Congress will pass a revised Internet Gaming Act and this recent price drop will be a good buying opportunity.

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