CRYP - Cryptologic thoughts from Motley Fool

[Sniper]

Take a look at CryptoLogic, which is a recommendation of Motley Fool Hidden Gems. The company develops gaming software for virtual casinos and poker houses, and derives about 30% of its revenues from U.S. sources. Now, of course, this revenue is in extreme jeopardy.

How bad is this? OK, let's suppose CryptoLogic's revenues in the U.S. go to zero. The company will likely still have about $100 million in revenues on a go-forward basis. Also, because of high margins, the net profits are still likely to be substantial. Assuming a 25% net profit margin, the business could generate $25 million in net income.

Next, compare this to the firm's enterprise value -- the market cap minus the money in the bank ($126 million) plus any debt (none, in this case) -- which amounts to roughly $118 million. Using the $25 million net income figure, CryptoLogic would be selling at four times its enterprise value. Moreover, despite the big setback, management believes it can continue to grow its business at a 20% annual rate.

No doubt, there is still a lot of risk here. Yet the worst-case scenario is now getting baked into the stock. In other words, for those investors who have a high tolerance for risk and like taking fliers on small stocks, wouldn't this be the time to consider a purchase?

[Cubswin]

I'm not an expert on stocks and such but have been looking for a few plays in all this madness. I saw the article your are referring to (Link)

This bit of text struck me as a bit odd:

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Surprisingly, large landed casinos such as Wynn Resorts (Nasdaq: WYNN), Las Vegas Sands (NYSE: LVS), and MGM Mirage (NYSE: MGM) went largely unaffected by the news. Obviously, if investors thought that the new law would put a stop to the U.S. poker craze, these companies would have been affected.

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This logic seems flawed. First, poker is s relatively small percentage of gaming revenue and an even smaller percentage of the casino's total revenue. Second, wouldnt a ban on internet gaming bring more players to the B&M casinos?

[TwoNiner]

Yeah, that second part is rediculous. The key part is Crypto being so European and I guess Asian focused. They painted their press release in a light that they were pretty much better positioned than anyone for this move, and I they are pretty much right. It showed up in that their stock didn't drop near as much as Party and some of the other london stocks. I see there was a donwgrade on Cryp today and probably a few more to come. Also, I think it was just today that they actually sent the E-mails out locking up American customers. I want to get in, but I wonder if it would be better to wait a little while so some of the immediate bad media can get out of the way? Of course there is just as big of a chance that the pros will come in even more and push it up in the meantime. I'm leaning towards getting in sooner, but not certain yet.

[DesertCat]

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Take a look at CryptoLogic, which is a recommendation of Motley Fool Hidden Gems. The company develops gaming software for virtual casinos and poker houses, and derives about 30% of its revenues from U.S. sources.

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The last 6k they filed said 35%. Either way, it sounds screwy to me. How well does CRYP know what their client's customers are doing? The U.S. is a huge economy and a huge part of the poker and online gambling economy, if you had to guess, you might think it's easily 50%+ of clients revenues. Is it possible that some of their client's U.S. revenues are misclassified?

I'd want to verify this number in some way before I continued with the investment. Not sure of how yet, other than reading every SEC filing they've made for the last couple of years.

[hawk59]

Say a poker site uses Crypto software, and this poker site is based in Gibraltar. And lets further say that 75% of this poker sites customers are US players. Does Crypto say that 75% of the revenue from this poker site is US based, or does it say that 0% is US based because the site is based in Gibraltar?

[DesertCat]

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Say a poker site uses Crypto software, and this poker site is based in Gibraltar. And lets further say that 75% of this poker sites customers are US players. Does Crypto say that 75% of the revenue from this poker site is US based, or does it say that 0% is US based because the site is based in Gibraltar?

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Or do they classify all Neteller based transfers as from a canadian source? I'm probably wrong on this, but I've been burned before on such blanket assertions about a companies revenue streams, that's why I caution to investigate carefully.

[TwoNiner]

Yeah, the other thing that came to mind was what kind of increased competition will they recieve from mega sites like Party and Stars now that they will be clearly focusing on the same European areas? Party has 3/4 of it's customer base to try and recoup and a pretty much endless amount of resources to go about doing so. Competition could possibly put a squeeze on Cryp's estimated growth numbers.

[Sniper]

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Second, wouldnt a ban on internet gaming bring more players to the B&M casinos?

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This is kind of a chicken and egg thing... which comes first...

The consensus would seem to be that by getting players hooked on gambling online, more would likely go to casinos, than if gambling wasn't so easy to do. Which is why B&M casinos are OK, but Online Gambling is Dangerous (according to those who pushed for this legislation).

[Sniper]

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Is it possible that some of their client's U.S. revenues are misclassified?

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All the accounts/revenue flows thru the cryptologic system and then gets dolled out to their licenses. Cryptologic knows everything that can possibly be known about their player base (based on activity on the system).

fwiw, if you want some bathroom reading, you can pick up copies of the crypto glossy annual reports.