It was a nasty start to the week for shareholders in online lottery ticket retailer Jumbo Interactive Ltd (ASX: JIN). This morning after the market opened the company issued an update which sent the share price down around 11.5% to a new one-year low of $1.15.
Jumbo through a partnership with gaming group Tatts Group Limited (ASX: TTS) has successfully sold lottery tickets in Australia via its website and has enjoyed an unbroken record of sales growth since 2005. Many investors have been excited by the group's expansion plans which have it selling lotteries online in Germany and with plans to sell online in Mexico. It appears however that the Mexico expansion is going far from smoothly with Jumbo forced to write-off its $2.5 million investment.
Meanwhile, Vietnamese casino owner Donaco International Ltd (ASX: DNA) released a Trading and Construction Update late last week. While the release appeared reasonably positive, some shareholders were presumably hoping for more judging by the resulting 10% drop in the casino operator's share price. In many ways, just as Jumbo is appealing to investors seeking high growth from online gaming, Donaco is appealing to investors seeking high growth from Asian gambling, as opposed to the slower growth from a domestic-based casino operator such as Echo Entertainment Ltd (ASX: EGP).
Pros and Cons
It's understandable that investors are attracted to the high growth potential of Jumbo and Donaco, however it is important for investors to understand the risks are also significantly higher for these companies, compared to the entrenched market leadership positions of Tatts and Echo. These risks include valuation risk, whereby the high multiples which growth stocks trade on can reduce substantially if the market negatively reassesses the growth potential.
