PartyGaming Launches New Platform: Empire Online Shareprice Slides as a Result

Monday, October 10th, 2005

Empire Online’s share price fell by a third today and other egaming stocks fell sharply as edgy investors gave the sector another body blow.

Empire’s value fell by over US$0.3bn following the announcement PartyGaming has set up a new operating platform solely for PartyPoker.com.

Empire Poker, the poker room owned by Empire Online, will now share a separate player pool with Party’s other skins, Coral, Intertops and Multipoker.

And analysts speculated the move to a smaller “skin only” network will damage Empire’s growth prospects.

“(The separation) causes some near term uncertainty surrounding Empire's player activity and yield per active player given that the liquidity at Empire Poker will be reduced,” a research note from Numis said.

And investors reacted swiftly by bailing out of Empire leaving the share price down 33% at a record low of 121p, valuing Empire at approximately US$0.62bn.

This was despite Empire issuing a bullish trading update stating net gaming revenues had grown 30% in the third quarter compared to Q2 2005 with active player numbers up 37%.

But comments by Empire CEO Noam Lanir that the broader poker market was showing little growth in Q3 added to the panic.

PartyGaming also suffered from the Empire share price collapse, finishing the day down 11% to a new low of 71p.

Sportingbet, which will publish its annual results on Wednesday and 888 also fell sharply finishing the day down 6.7% and 11.3% respectively.

But analysts said the market reaction did not accurately reflect the strong performance of some companies in the sector.

"There has been a setback in valuations, but I would anticipate companies being judged on performance metrics in the future," Greg Harris, analyst at Cannacord, said.

Paul Leyland, leisure analyst at Seymour Pierce said he felt Empire was overvalued, but the share price fall was for the wrong reasons.

"Empire has more than enough players to survive on its own," Leyland said.

And he questioned PartyGaming’s move to go it alone.

“It seems like a churlish decision by Party, especially as it appears to lack the marketing skills Empire has in attracting new customers,” Leyland added.

And analysts at Numis echoed that view of Empire's strengths in marketing.

"Empire's increasingly diversified operating model and its core marketing and distribution skills remain attractive and will underpin the group's continuing future success," the Numis research note added.