The move to online business opens up definite growth possibilities and equally challenging situations for companies in the gaming and gambling business. Leisure and entertainment is something everyone enjoys, and will pay good money for.
Now with online and mobile capabilities, people can take part in gaming and free-to-play gambling wherever they are, and traditional tote, lottery and casino business is quickly developing and expanding to not only seize new customers but to protect its current number of loyal players.
Tatts Group (ASX: TTS) and Tabcorp (ASX: TAH) are the most well-known for wagering, totes for racing, as well operating gaming machines in licenced gaming venues.
Tatts Group now recieves 8.2% of its total lottery sales from online channels, and 20% of wagering sales are online as well. Tatts.com, its online portal, has over 900,000 customers, and achieved 35% in sales growth.
Tabcorp's Luxbet online wagering website had revenues grow by 40.1% to $39.1 million in 2013. Total digital turnover grew to $2.45 billion, up 13.6%, and the increase in mobile wagering of all digital turnover increased from 28% in the first half 2013 to 43% in the second, so the move to mobile can be clearly seen.
Another company, Jumbo Interactive (ASX: JIN), deals only in lotteries, and is currently expanding its business from not only offering online lottery games to overseas customers, but also creating strategic partnerships in the US to become directly involved in physical lotteries games.
This December it will begin offering online lotteries in Germany, and has licences for all the country's states, or landers. The company estimates that the total internet lottery market in Germany will grow to about $1.8 billion over the next five years.
Gaming machine developer Ainsworth Game Technology (ASX: AGT) creates electronic gaming machines for casinos and gambling venues, and it can develop online and mobile gaming even if they sell or license it to service providers.
Aristocrat Leisure (ASX: ALL), the largest Australian gaming machine maker by market share, purchased an online social gaming platform in the US called Product Madness, one of the top five operators of social casino games on Facebook.
This will lead to it further entering mobile gaming and potentially online gambling if and when the US changes its gambling laws, which currently restrict most online gambling outside of a small number of special venues.
Foolish takeaway
People loves games and playing, even when they lose. It is a growing business, but because of the online nature, competition can be stiff.
Again, like in other industries, we want to look for companies that don't have to pay enormous amounts of money just to keep up, and they have to be low-cost producers to safeguard profit margins. Those combined with good earnings growth separate the great companies from the rest.
