The sharp growth of the online betting sector came to an abrupt halt yesterday, when shares in PartyGaming fell by 33 per cent after the world's largest internet gaming group hinted that the boom in online poker may be starting to wane.
The warning came less than three months after PartyGaming's initial public offering, which raised just under £1 billion (€1.48 billion).
The Gibraltar-based, London-listed company, which generates 90 per cent of its profits from online poker, said customer growth had slowed while player retention rates and player yields had declined at rates that were "greater than expected".
PartyGaming has been the chief beneficiary of the craze for online poker, with shares in the group enjoying a meteoric rise since its controversial listing in June. The group succeeded in launching the IPO despite fears about the legality of online gaming in the US, its largest market. But the warning brought PartyGaming's shares crashing below the float price to close at 105p, valuing the group at £4.2 billion.
Although the downbeat assessment hit rival quoted online gaming groups, 888.com, an online casino group that has launched a £700m IPO, said its plans to float in London were unchanged.
John Anderson, 888's chief executive, said: "We have a diverse operation in terms of geography and product. In respect to our competition in the marketplace we have a very different business model."
Online poker has been the main driver of growth in the internet gaming sector, but this growth is slowing across the industry. Commissions paid by poker players in July and August 2004 rose by 24 per cent compared with the previous three months, according to PokerPulse, which monitors the sector.
But by July 2005, the rate of growth compared with the previous quarter had slowed to 4 per cent. Martin Weigold, PartyGaming's finance director, said: "I think the market appreciates that there are very strong rates of growth and lots of opportunities but that these rates will moderate over time." He added: "At this stage it's difficult to know whether the trends that we're seeing in active player days are a blip or part of a longer-term trend." Pre-tax profits for the six months to June 30th were $186.3 million compared with $146.6 million.
