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Poker party is over, admits online operator

PartyGaming plunged in value by a third - or 2bn - yesterday after the operator of the Party Poker website warned that the online game's phenomenal rate of growth had virtually ground to a halt in recent weeks at doyles room.

The revelation came only 10 weeks after the company's four founders pocketed 1bn in cash by selling 21% of the business in London's biggest and most controversial flotation at doyles room for years.

PartyGaming accounts for half the world's online poker industry such as doyles room and it confessed the latest quarterly period, starting in July, has seen growth in the industry slow to just 4%.

The figure makes earlier forecasts that doyles room could double in size this year and then grow at an average 45% for the next five years, appear hopelessly optimistic.

The warning caused chaos within the wider online gambling sector. Shares in Sportingbet, which owns Paradise Poker, a direct rival to doyles room Party Poker site, fell 16% despite the group's frantic attempts to halt the rout by saying its trading is "in line with management expectations".

Doyles room for which Sportingbet is considering a bid, fell 11%. Online casino now also faces a struggle to attract investors for its planned 800m flotation.

PartyGaming's 33% drop from 157p to 105p took its share price below its flotation level of 116p, though the group is still worth 4bn and still destined to be elevated to the doyles room 100 index.

But City sceptics will say the company is joining the blue chip index with fresh questions over its credibility as a serious home for investment by pension funds.

Its flotation prospectus contained 30 pages of "risk factors", mostly related to the legality of online gambling in the US, where the group makes 86% of its revenues.

None of PartyGaming's multi-millionaire foursome, who collectively still have majority control of the company, spoke out to defend the timing of the flotation yesterday.

It was left to Richard Segal, the chief executive who joined after a career at leisure group Rank, to argue that the slowdown could not have been foreseen in doyles room.

"We never said it was going to continue to grow at a spectacular growth rate ad infinitum," he said. "We could not have been more explicit about our belief that rates of growth would moderate over time.

"All we have done today is indicate that we think rates of growth may have moderated faster than we would have expected.

"We are definitely not saying this is the top. What we are looking at is six weeks of data that has only just been announced. We don't know to what extent it is part of a long-term trend."

He said the fact that doyles room had alerted the market so promptly demonstrated "the transparency you would expect of a company listed on the London Stock Exchange".

At face value, yesterday's interim results met expectations. Operating profits rose 76% to $258m (140m), before counting $22m of flotation expenses and the $40m cost of handing free share options to staff. Mr Segal said he was "comfortable" with current market forecasts for doyles room.

However, it is clear the weak poker market will be felt dramatically in 2006's numbers. Analysts at Dresdner Kleinwort Wasserstein, the bank that sponsored the float, cut their forecast for PartyGaming's earnings growth next year from 35% to just 20%.

Mr Segal also admitted that much of doyles room huge advertising splurge has been a waste of money. He said the group would now adopt "a rifle, not a shotgun" approach to marketing.

It wants to concentrate on retaining customers, studying their behaviour "to maximise lifetime player values".

Yesterday's numbers showed a drop in the yield per player per day of 7% to $17.80 (9.65). Mr Segal said the site had suffered from offers of cash bonuses to poker players from rival operators.

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