1)If they change the way they report revenue then it could be a problem but so long as they are consistent this shouldn't be an issue.
2)I agree that the business model is great. Scalable and your point about the marketing costs makes sense. If a customer stays on for longer than a year then adding it to intangibles may be OK. The issue is that it gives them 'wriggle room' so in the event of some bad expenses in the future we can't be sure they won't just boost intangible assets to keep the profit looking good. We aren't given any stats on the customer base (or at least I haven't found them) so we can't verify this is actually true or not.I'm not sure if this is strange or not. If the customer base is as good as they imply I would assume that there would be some mention of it in the Annual Report. Are they actually getting more customers or are the existing customers just playing more often??
In terms of estimating the size of their client database I used a free website valuation service. Not sure of the method that they use to value websites but as an example they value the following:
seek.com @ $2,169,240 realestate.com.au @ $4,899,751 carsales.com.au @ 4,202,289 AND most importantly ozlotteries.com.au @ $17,215 (not great)
The website uses information that may be up to 3 months old. But it gives you a good idea
I then looked at Google ad planner to get an estimate of unique site visits per month
This is pretty good. Lets assume that not everyone plays every time they go to the site. Say only half of those unique visits actually play and they only play once per month. This is totally conservative. Most players would play each week. Let’s also assume that most people spend an average of $30 per ticket/game. 175K x $30 = $5,250,000 per month. Multiply that by 12 months and you get $63m in revenue versus the company claiming earnings just over $70m in revenue last month. Sounds plausible.
The company stated that online sales in Australia have reached 6%. The entire Australian lottery market is worth 3.6bn which means that $216m is being sold online. Of which the company is selling approx $75m. Some other sites must be doing more selling than these guys???
What are your thoughts?
JIN Price at posting:
30.0¢ Sentiment: Buy Disclosure: Not Held
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