Stars Group slips to net loss despite revenue growth in Q3

7 November 2019

The Stars Group has posted a net loss of $51.7m (£40.2m/€46.7m) for the third quarter of 2019, despite its operations in the UK and Australia pushing revenue up 8.8% during the period.

Total revenue for the three months through to 30 September 2019 amounted to $622.5m, up from $572.0m in the corresponding period last year.

UK revenue increased 34.8% from $168.4m in Q3 of 2018 to $227.0m this year. Stars noted that the year-on-year result was helped by the fact that it owned and operated Sky Betting & Gaming for all Q3 this year, whereas last year it acquired the business on July 10, partway into the reporting period.

Sports betting was by far the main source of revenue in the UK, contributing to $130.0m of market revenue, while gaming also performed well by generating $85.2m in revenue for the quarter.

Stars also saw its Australian business, comprising the CrownBet and former William Hill Australia assets, perform well in Q3, with revenue rising 36.4% to $71.2m.

The operator noted that Australian revenue growth came despite a year-on-year dip in stakes, which was primarily due to the fact that the operating period last year included the latter stages of the Fifa World Cup. However, betting was still the main source of income in Australia, with revenue up 34.2% to $70.0m.

Stars’ international operations generated the most revenue during the quarter, but this figure was down 7.7% year-on-year from $352.4m to $325.5m. Stars put this down to adverse foreign exchange fluctuations and regulatory headwinds in certain markets. The operator said reduced deposits by customers were a result of local restrictions on certain payment methods and ways of downloading its products.

All but one of Stars’ divisions saw a year-on-year dip in international revenue. Poker, its main source of income, slipped 10.8% to $189.9m, while betting was also down 13.7% to $18.1m. However, there was slight growth in gaming, with revenue rising 1.6% to $109.3m.

Stars saw costs rise across its entire business during the third quarter. General and administrative expenses were its main outgoing, with this rising 25.6% from $267.2m in Q3 of 2018 to $335.5m this year.

Research and development costs were up slightly from $11.9m to $13.3m, but Stars was able to reduce sales and marketing expenses from $92.5m to $91.4m.

Higher spending hit Stars’ earnings for the period, with the operator posting a net loss of $51.7m, compared to net earnings of $9.7m in the corresponding quarter last year.

Operating income was also down by 77.1% from $71.2 to $16.3m, while loss before income taxes widened from $3.5m last year to $41.9m.

For the year to date, through to the end of September, total revenue at Stars stood at $1.84bn, up 33.7% on $1.38bn at the same point in 2018. Net loss improved by 72.5% from $70.3m to $19.4m, but operating income was down 7.7% to $171.8m.

Reflecting on the third quarter, Stars’ chief executive Rafi Ashkenazi said: “Our third quarter results were robust and in-line with our expectations, supported by strong revenue growth in our UK and Australia segments, which helped offset both the ongoing disruption in certain of our lower-priority international markets and continued foreign exchange headwinds across the business.

“We have also made rapid progress in the US following our landmark Fox Sports deal in May, with the launch of our Fox Bet products at the start of the professional football season in New Jersey and Pennsylvania, and some very encouraging early signs from our Fox Sports Super 6 nationwide free-to-play games.”

Ashkenazi also noted Stars’ pending acquisition by Flutter Entertainment, with the Paddy Power Betfair owner set to merge with the operator to form a combined business with annual revenue of £3.8bn. Subject to approval, the merger is expected to go through in the second or third quarter of next year.

“We remain excited about the opportunities in front of us as the combination will enhance and accelerate each company’s growth strategy by providing a diverse portfolio of leading brands and complementary best-in-class products with a broad geographic reach,” Ashkenazi said.