500.com reveals wider losses despite revenue growth

25 February 2019

Chinese online sports lottery provider 500.com has reported increased operating losses for 2018, despite experiencing a 73.7% year-on-year rise in revenue.

Net revenue for the 12 months through to December 31, 2018, at the New York-listed company amounted to RMB126.1m (£14.4m/€16.6m/$18.9m), up from RMB72.6m in 2017.

500.com said this growth would have been significantly lower if its acquisition of TMG, on online lottery betting and online casino platforms based in Malta, had been completed in January 1, 2017, rather than the actual transaction date in July 2017.

On a pro forma basis, assuming that the deal went through in January 2017, TMG would have contributed full-year total net revenue of RMB93.4m, thus boosting 2017 revenue to RMB116.6m. As a result, year-on-year growth for 2018 would have stood at just 8.1%.

However, operating losses for 500.com increased by 34.6% to RMB494.4m from RMB367.3m. This was partly down to an increase in operating expenses for the full year, with this total standing at RMB635.7m, up from RMB413.2m in the previous year.

500.com faced much higher expenses in terms of impairment of equity method investments, with total spend rising from RMB28.8m to RMB149.9m, while the company also committed more funds to services, up from RMB38.2m to RMB80m.

There were also higher costs for general and administrative purposes (RMB251.4m), service and development expenses (RMB61.9m) and sales and marketing investment (RMB92.4m), with the latter of these mainly attributed to advertising expenditure for the 2018 Fifa World Cup.

In addition to reporting an operating loss, 500.com saw loss before income tax rise from RMB345.5m to RMB491.3m and net loss climb from RMB316.1m to RMB459.4m. Net loss attributable to 500.com stood at RMB427.3m, up from RMB374m in 2017.

Reflecting on the results, 500.com CEO Zhengming Pan said that the company is still feeling the effects of the decision to suspend online sports lottery sale in China back in April 2015. Pan said that 500.com has operated in line with the regulations, seeking out other markets to boost business.

“Since we voluntarily suspended our online lottery sales operations in April 2015, we have continued to engage in new and promising initiatives to increase our revenue base,” Pan said. “For example, we acquired TMG in July 2017, and this acquisition has significantly increased our revenue.

“In addition, in March 2018, we entered into a framework agreement with CSLA, under which, both parties plan to cooperate to develop physical channels to sell sports lottery tickets. In that regard, we have entered into framework agreements with Tianjin, Hunan and several other provinces and cities in China, to assist them in developing physical sales channels of sports lottery tickets.

“We also have started trial operations in Tianjin, Hunan, Hubei, Guangxi and several other provinces and cities in China.”

Pan added that 500.com is committed to these expansion efforts in order to help enhance value for shareholders inevitably hit by the online lottery sales ruling.