AYA.TO - AMAYA

[rukawa]

This stock will double within 1 year. I knew this within 5 minutes of reading this:

http://www.valueinvestorsclub.com/idea/AMAYA_INC/135977

[benhacker]

That's a membership only link, care to share your summary of the thesis?

[Hielko]

You can access this one without being a member since it's more than 45 days old.

 

FWIW: I think the thesis is seriously flawed since I don't think online poker is a growth market and they don't have a competitive advantage in generic online gambling (if they would enter it).

[bigbluffzinc]

Online poker at present is definitely not a growth market.  Online players have declined from 50,000 two years ago to about 35,000 today.  Winning players today are stronger than they were last year and will be stronger than they were the year before, exhausting the deposits from net depositers (fish) at a faster rate and decreasing Pokerstars' overall return per recreational player acquired.  There are opportunities for growth if the US reopens and I do think their brand carries weight in the verticals Baazov is targetting namely from the current player base participating in the new games and pokerstars making a much larger spread than they do from rake but it's a stretch to say 100% double.  (It's one of my largest positions and I run the largest staking platform on Pokerstars for professional players so I'd love for the market to grow and this to double, I just think undervalued is more appropriate than shoe-in double)

[bigbluffzinc]

The thesis is basically that Pokerstars has a dominant market position (it does) and it will benefit from entering the verticals it has historically not participated in (Sports betting, casino games, etc).  And it will. (Minimal capex to get that started and there's only upside because the returns on capital are much higher there than they are for poker).  And that this has been tested on their Full Tilt site already with success and on their european sites.  It cites the lack of an existing shareholder constituency as the reasons for undervaluation in addition to the recent probe into insider trading.

 

I think all that's true but I agree with the report that the upside is to around $45/share, not $60/share.  AKA not a double.

 

The growth will come from the verticals, not the poker market.

 

*I didn't incorporate margin expansion because I didn't have data to do that.  I knew the size of the market and looked at that but that would make my number pretty conservative.  Maybe it's a double..

[rukawa]

I think all that's true but I agree with the report that the upside is to around $45/share, not $60/share.  AKA not a double.

 

Exact same information as yours and mostly similar judgement. But my conclusion is different. In 1 year we will know. But I love this forum because you know infinitely more about online poker than I do so I get to learn from you !!! Here is what I see:

 

• Massive existing customer base. Wikipedia says 50 million and the forbes article "King of Online Gambling" says 89 million customers on which to cross-sell (this is one competitive advantage they have in generic online gambling, Heiko).
   
  
• A company and CEO that already has experience delivering other forms of gambling (before Amaya became a "poker" company it provided casino's with gambling software and hardware (see the other VIC entry on Amaya). This is the second advantage they have in generic gambling
  
• A proven ability to cross-sell. From the Forbes article "PokerStars recently launched casino games in Spain and within weeks grabbed double-digit market share"
  
• A ridiculously brilliant, audacious and properly incentivized CEO. Baazov's deal with Pokerstars was brilliant and he has a large stake in his company
  
• A business with fantastic economics. Negative working capital. High Margins. Very little need for capital.
  
• The VIC article nicely summarizes the reasons it was undervalued and the catalysts. The catalysts are highly attractive because they are basically quarterly and annual financial reports!! This is the reason I can say this will happen in 1 year. And I do think that anchoring has a huge effect on expectations for this stock.
  
• An articulated and empirically proven plan for growing revenues by cross-selling. My view on cross-selling is the same as the VIC author put in one of the comments..."It really will be like flipping a switch". Before Amaya did all the grunt work and Casinos made the money. Now they own a Casino. This is just too easy for them.
  

 

The VIC article is very conservative. Especially on the multiple which they themselves admit. A 20 multiple is justified on the quality of the business alone. That doesn't factor in the growth which I believe will be high and proven in the first year.

[roughlyright]

Benhacker,

 

  I have attached the report in case you are not able to access it.

 

Roughlyright

Value_Investors_Club___AMAYA_INC_AYA.pdf

[frommi]

60% of their revenue is not in USD, around 50% in €. But their costs/debt is mainly in GBP/USD?

By my rough calculation the recent fall of the € can have easily reduced their net income by >35% going forward, so the US expansion is not a nice addon but now a must-have to get to the numbers in the VIC-writeup. Based on what is knowable it looks like it is fair valued here and the upside comes from re-entering the US and growing very fast in Asia.

[Guest Schwab711]

60% of their revenue is not in USD, around 50% in €. But their costs/debt is mainly in GBP/USD?

By my rough calculation the recent fall of the € can have easily reduced their net income by >35% going forward, so the US expansion is not a nice addon but now a must-have to get to the numbers in the VIC-writeup. Based on what is knowable it looks like it is fair valued here and the upside comes from re-entering the US and growing very fast in Asia.

 

I am hesitant to assume PokerStars/Full Tilt will immediately resume their market-share if the US legalizes just because they previously were. This is an extremely competitive industry to get to become the market-share leader and gain network-effects (which is the only way to get worthwhile returns). There is a lot of capital itching to fight this battle.

[benhacker]

Thanks RR!

[Hielko]

60% of their revenue is not in USD, around 50% in €. But their costs/debt is mainly in GBP/USD?

By my rough calculation the recent fall of the € can have easily reduced their net income by >35% going forward, so the US expansion is not a nice addon but now a must-have to get to the numbers in the VIC-writeup. Based on what is knowable it looks like it is fair valued here and the upside comes from re-entering the US and growing very fast in Asia.

 

I am hesitant to assume PokerStars/Full Tilt will immediately resume their market-share if the US legalizes just because they previously were. This is an extremely competitive industry to get to become the market-share leader and gain network-effects (which is the only way to get worthwhile returns). There is a lot of capital itching to fight this battle.

Pokerstars already has the network effects, assuming that the US player pool will be mixed with the worldwide player pool. But perhaps this might not happen since many regulated markets are walled off. Don't know how the current legislation proposals look like in the US...

 

 

[ItsAValueTrap]

I really liked Alpha Vulture's blog post on Amaya:

http://alphavulture.com/2015/02/03/amaya-is-pokerstars-a-high-quality-high-growth-business/

 

[rukawa]

60% of their revenue is not in USD, around 50% in €. But their costs/debt is mainly in GBP/USD?

 

I'm a CAD investor so I am looking at it from that point of view.

 

I really liked Alpha Vulture's blog post on Amaya:

http://alphavulture.com/2015/02/03/amaya-is-pokerstars-a-high-quality-high-growth-business/

 

As far as I can see the main thing he argues is that poker will get solved and this will eliminate the need to play.  My experience playing card games has taught me that when you increase the importance of luck and reduce the importance of skill/learning, the game gets much more interesting.  But this fits into my general thesis which is the future of the company is not conventional poker but casino type games which are more about luck than skill.

[Haasje]

60% of their revenue is not in USD, around 50% in €. But their costs/debt is mainly in GBP/USD?

 

I'm a CAD investor so I am looking at it from that point of view.

 

I really liked Alpha Vulture's blog post on Amaya:

http://alphavulture.com/2015/02/03/amaya-is-pokerstars-a-high-quality-high-growth-business/

 

As far as I can see the main thing he argues is that poker will get solved and this will eliminate the need to play.  My experience playing card games has taught me that when you increase the importance of luck and reduce the importance of skill/learning, the game gets much more interesting.  But this fits into my general thesis which is the future of the company is not conventional poker but casino type games which are more about luck than skill.

 

If no limit were to get solved, which is probably pretty far off but the more the game format looks like limit the more likely it will soon be played much better by the deep blues, the problem wouldn't be that people would be turned of by computers being superior players. People still like chess. But getting demolished by bots online masquerading as humans would very quickly bore people. Bots would also remove money from the ecosystem at a higher rate which would hurt rake and thus profits. Ofcourse the sites would try to keep bots out but that may not actually be that easy. It would be a strategic move for Pokerstars to push games that are harder to solve with deeper stacks and more hidden information. Unfortunately focussing on these type of games also decreases short term profits.

 

 

[InsecurityAnalysis]

I would add that you can include human players that use certain scripts and tools that could provide probability data of the hand they are playing and other such advantages over normal human players.

[frommi]

Looks like they agreed that the €/$ rate is a problem. http://finance.yahoo.com/news/amaya-announces-cross-currency-swap-114500993.html

Can someone explain how this swap works? I am just too stupid to figure this out with the information in this announcement.

 

Btw. Pokerstars always had to fight/detect bots, thats nothing new. Thats a race like anti-virus software vs. virus programmers.

[Guest Schwab711]

Looks like they agreed that the €/$ rate is a problem. http://finance.yahoo.com/news/amaya-announces-cross-currency-swap-114500993.html

Can someone explain how this swap works? I am just too stupid to figure this out with the information in this announcement.

 

Btw. Pokerstars always had to fight/detect bots, thats nothing new. Thats a race like anti-virus software vs. virus programmers.

 

Amaya has floating USD debt and wants EUR fixed debt to match liabilities. They go to a bank who matches them with someone who has the opposite problem. If interest rates for USD or EUR change then they square up (usually daily - like forex.com)

[frommi]

Amaya has floating USD debt and wants EUR fixed debt to match liabilities. They go to a bank who matches them with someone who has the opposite problem. If interest rates for USD or EUR change then they square up (usually daily - like forex.com)

 

Ok.

 

The Swap Agreements allow the Subsidiary to create synthetic Euro-denominated debt with fixed Euro interest payments at an average rate of 4.6016%1 in place of USD interest payments bearing a minimum floating interest rate of 5.0%2 related to the USD$1.75 billion seven-year first lien term loan secured by the Subsidiary on August 1, 2014 . The interest and principal payments for the Swap Agreements, which mature in five years, will be made at a Euro/USD FX Rate of 1.1102 on USD notional amount3 of $1.74125 billion .

 

What i didn`t understand was that someone agreed to make that swap at a level of 1.11 when we are already at 1.06? Or is the deal already two weeks old?

 

[Hielko]

Btw. Pokerstars always had to fight/detect bots, thats nothing new. Thats a race like anti-virus software vs. virus programmers.

Yes, but it is a fight they can never win, even if they are able to detect 100% of all bots successfully. As soon as there is a bot that can beat the games there is a system that can be taught and/or copied by humans. Why do you think that heads-up limit as a game has been dead for years? It simply was solved to such a degree that people were no longer willing to play versus each other. Real money backgammon games on the internet also died out as soon as that game was solved. People don't want to play a game that is not fair!

[frommi]

Yes, but it is a fight they can never win, even if they are able to detect 100% of all bots successfully. As soon as there is a bot that can beat the games there is a system that can be taught and/or copied by humans. Why do you think that heads-up limit as a game has been dead for years? It simply was solved to such a degree that people were no longer willing to play versus each other. Real money backgammon games on the internet also died out as soon as that game was solved. People don't want to play a game that is not fair!

 

Hm i play for fun, not to make money and i think a lot of other people do it, too. The luck factor is so big that it doesn`t matter for single outcomes if i play against a better opponent. Everybody knows that the casino has the edge in every game they offer, but people still play the games.

[writser]

Yes, but it is a fight they can never win, even if they are able to detect 100% of all bots successfully. As soon as there is a bot that can beat the games there is a system that can be taught and/or copied by humans. Why do you think that heads-up limit as a game has been dead for years? It simply was solved to such a degree that people were no longer willing to play versus each other. Real money backgammon games on the internet also died out as soon as that game was solved. People don't want to play a game that is not fair!

 

Hm i play for fun, not to make money and i think a lot of other people do it, too. The luck factor is so big that it doesn`t matter for single outcomes if i play against a better opponent. Everybody knows that the casino has the edge in every game they offer, but people still play the games.

 

Sure, but casual players log far fewer hours and are generating far less rake for Pokerstars. The grinders will stop playing. See the backgammon example.

[frommi]

Sure, but casual players log far fewer hours and are generating far less rake for Pokerstars. The grinders will stop playing. See the backgammon example.

 

So 85 million players generate less rake than 100k pros that have special rakeback deals? Are you sure?

[yadayada]

Probably  the majority of the players on pokerstars are pro's now. Also they count players per seat. So if one person is 24 tabling, they count as 24 players. So the real number of players that play more then like once a year, is far lower then 85 million. If you log on right now, it says 167k players. Real  number is probably more like 30-40k. And then another 10-20k on the .fr and .it versions?  5-6 years ago, when i was playing lower stakes, the majority were recreational, but the mix has drastically changed over the past 5 years.

 

I mean you can log in and see for yourself. If a table has around 15-20% players seeing the flop (for NL games and PL games), that means there are mostly pro's (or would be pro's) on that table. And the moment that game is solved, player count will drastically reduce.

 

Also you are overestimating the luck factor in this game. The hands in my bumhunt sample (only play bad players) i sometimes did not have losing sessions for weeks. If a player is bad enough, the long run (period that it is very unlikely they will win) can be two afternoons!

 

The fact that a lot of smaller sites are becoming quite predatory says something about the prospects of this industry. Party poker for example charges you like 3% if you want to cash out your money through most of their cash out options. Which is completely ridicilous.

 

This is email from pokerstars support. If you want to know anything about them you can email them, they are actually very responsive.

 

Hello Adam,

 

Thank you for your email.

 

That number counts the total number of players that are visible to you. It counts each filled seat that is visible to you, and thus, the total number of players that you could play against.

 

On PokerStars, that means counting the total number of filled seats on our PokerStars and PokerStars.NET versions of our software, plus play money players on .IT.

 

If you are operating the PokerStars.NET version of our software, it counts the total number of filled seats in our play money games on PokerStars, .NET and .IT services.

 

If you are operating the PokerStars.IT version of our software (available only in Italy) then you can see the total number of filled seats in our play money games on PokerStars and .NET, and all players, both real money and play money, on our .IT service.

 

The total number of filled seats as listed in our lobby is usually *smaller* than the total number of players logged in, which is the barometer used by some other sites. Thus, despite using the more conservative calculation method, PokerStars remains the largest online poker site by quite some margin.

 

Please let us know if we can assist you further, and thank you for choosing PokerStars.

 

Regards,

 

Samanta C

PokerStars Support Team

 

In fact NL holdem has already been partially solved, I think on ipoker there were bots at mid stakes destroying them games for a few bb/100 and took home like a 7 figure amount over a large sample.

 

Number is closer to 20k actually, and for fr and it versions, it is closer to a few k:

 

http://www.pokerscout.com/SiteDetail.aspx?site=PokerStars&ab=2927015#PeakHistory

 

The number of players also does not seem to be growing. So looking at recent earnings, it seems the stock is quite expensive.

[frommi]

Thanks.

[Hielko]

Yes, but it is a fight they can never win, even if they are able to detect 100% of all bots successfully. As soon as there is a bot that can beat the games there is a system that can be taught and/or copied by humans. Why do you think that heads-up limit as a game has been dead for years? It simply was solved to such a degree that people were no longer willing to play versus each other. Real money backgammon games on the internet also died out as soon as that game was solved. People don't want to play a game that is not fair!

 

Hm i play for fun, not to make money and i think a lot of other people do it, too. The luck factor is so big that it doesn`t matter for single outcomes if i play against a better opponent.

As a former professional poker player I wish there were more people like you! You have no idea what kind of battles are fought these days with for example seating scripts just to get a spot at a table with a recreational player.