Is Jumbo Interactive still a jackpot stock?

Companies across many different industries are realising the advantages of using the Internet as their primary marketplace. Retail companies, such as JB Hi-Fi (ASX: JBH) and Harvey Norman (ASX: HVN), have realised the necessity of building an online presence to compete with behemoth online retailers such as (NASDAQ: AMZN).

Jumbo Interactive Limited (ASX: JIN) is another company to recognise the opportunities that the Internet can bring to business. In 2000, Jumbo Interactive pioneered the use of online lottery and gaming services, in a bid to transition punters to a more instantaneous gaming experience played in a safe and secure online environment.

Jumbo Interactive was one of the ASX’s success stories of 2012, with shares soaring 529% in market value for the year, and has continued its run toward becoming a strong leader in the interactive lottery business, delivering increases in both total transaction value (TTV) and revenue for half year December 2012. Despite these increases, which were announced on February 22, 2013, the market decided the company was no longer worth the gamble, selling the shares at $2.45 after having closed at $3.03 the day before – a 19.14% loss. This was a result that only a major market under-appreciation or skepticism could explain.

Jumbo Interactive’s extremely popular Oz Lotteries website offers customers an easy-to-use and convenient way of buying lottery tickets, which have been its primary product offering since the company’s beginning in 2000. Jumbo Interactive released five further products in half year December 2012, which saw the introduction of ‘Jumbo Group Play’ (aka ‘Syndicates’) – group lottery games formed on social media – and ‘Jumbo Digital Instants’, Jumbo’s digital version of scratch tickets (which is currently not available in Australia due to legislation).

Furthermore, Jumbo’s primary focus for 2012 was to expand into international markets. Jumbo hit the jackpot when it landed a landmark deal in Mexico, whilst also embarking on a joint venture with New York-based company Retail Gaming Solutions, which specialises in physical lottery merchandising. Jumbo spread the risk of international expansion and reaped the rewards.

Results displayed in the company’s report, released on Friday, were strong in comparison to last year’s results — TTV for half year December 2012 was $59.2million, an increase of 23.1% on that of half year December 2011, whilst revenue for the period was $13.4 million, an increase of 13.6% from half year December 2011.

However, such strong results did little to impress shareholders, with a resultant 19.14% fall in market value by market close. Despite the impressive revenue gain, revenue fell short of the forecast for the period by $400k.

Foolish takeaway

While forecast revenue amounts were not met in its half year December 2012 report, Jumbo Interactive has shown impressive and consistent growth in revenue and TTV for a number of years. Investor fear and disappointment could have been the cause of today’s massive price drop, and time will tell whether investors are still happy to take the punt on Jumbo Interactive.

Is Jumbo Interactive too much of a gamble for your portfolio? If you’re looking for other great investment ideas, click here now to get The Motley Fool’s special FREE report, “3 Stocks for the Great Dividend Boom”. The report lists the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better.  Click here now  for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Ryan Newman does not own shares in any of the companies mentioned in this article.

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