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Is Tabcorp worth backing?

Tabcorp Holdings (ASX: TAH) announced today that revenue for the three months to September 30 was $503.9 million, up 3.1% on the prior corresponding period.

Revenue grew across the media and international business by 10.1%, reflecting the increased popularity of Australian racing overseas. The Sky racing channels now broadcast Australian racing in 51 countries, with increased subscriptions boosting revenues.

However, the key revenue driver, the wagering division, produced another flat result. The group blamed tough trading conditions as revenues rose just 0.1% to $385 million. The Keno game also saw flat revenues on the back of soft retail trading conditions across the eastern states and Victoria.

Digital turnover, including betting through tablets and iPhones was up 14.3%. The group’s iPhone, iPad and Android apps were downloaded over 900,000 times in fiscal 2013, as the group attempts to leverage the shift online.

That shift is both an opportunity and challenge for the group. While it presents opportunities for growth, it also brings increased competition. Punters now have multiple online alternatives to place their bets, where non-existant before, with offshore operators like bet365 providing the competition. As the battle for digital market share heats up, Tabcorp’s traditional bricks-and-mortar business model is also facing long-term headwinds, with digital betting increasing as a new generation of punters embraces technology.

Regulatory changes can also have a significant impact on the group’s earnings dynamics. One potential change on the horizon is the relaxation of the live online betting rules. The rule change would allow punters to gamble online while an event is ‘in-play’. The group could expect to see a significant increase in wagering turnover if the rules were changed in its favour, and the election of a new government may see this take effect.

Foolish takeaway

The share price has travelled sideways alongside the group’s results in recent times, with revenues from wagering flat reliance is being placed on other areas to drive growth. Investors looking at the long-term picture may see better value elsewhere.

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Motley Fool contributor Tom Richardson does not own shares in any of the companies mentioned in this article.

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