Relatively sudden changes in the Chinese market. This was the official explanation offered by Playtech after its recent warning on a decline in profits. This is the second time this year that the red-flag situation has come up in terms of the company’s finances. The sudden announcement caused shares to drop by almost 27% on the London Stock Exchange.
The price of a single share fell all the way to £5.52, officially the lowest value recorded during the four years that the company has been listed and trading on the Stock Exchange.
Competition To Contend With
Playtech has said that the Asian market is presenting with an increasingly more competitive landscape and that this is the main downwards driver behind the drop in value of the company’s shares. Profit margins are greatly affected whenever competition gets rife and in this case, that is exactly what has happened.
In June, all seemed rosy for the Isle of Man-based company, when changes in Italy’s financial market regulations enabled them to acquire the remaining 19% stake in local competitor Snaitech, thereby concluding the £741 million take-over.
Banking group Morgan Stanley told London’s Financial Times that it was pricing pressure from competitors in China that had caused the brand’s products to cease enjoying priority on Asian licensee websites. The prevailing situation has in fact caused a massive downgrade, which is, in turn, taking a major toll on the value the company’s shares due to the expected further decline in profits and subsequently, lower returns and value for shareholders.
Strict Regulations A Problem Too
Playtech relies heavily on revenue income from the Asian continent, especially Malaysia. This is proving to be a major stickler and contributing factor to the worrying situation, as Malaysian authorities have recently cracked down heavily on online gambling. Further restrictions are expected for the near future. The company has said that unless a significant shift takes place in Malaysia, it does not foresee revenue income remaining anywhere near on par.
What this translates to in financial terms is an estimated 25% drop in Playtech’s daily revenue income in Asia. This estimate was drawn by Investec analysts and paints a very troubling picture for the future of the company.
The brand’s Chief Executive Officer, Mor Weizer, has said that despite the disappointing nature of the situation in Asia, the company’s performance during the first half of the year was more or less in line with expectations.