Shorting party poker

[J_V]

Free money in the long term, no?

Number one reason being that incredible growth is already priced in and certainly not sustainable.

[michiganfan9]

I see what your saying but it will skyrocket the first few months just like google.

[michiganfan9]

but then after that, i guess you could

[AceHigh]

Party Poker is a money making machine. Why would you short a profitable company that is taking in a ton of cash? And even if it stops growing is unlikely to see a decrease in earnings anytime soon.

Here's a secret, short bad compainies not good ones.

[Glenn]

"Here's a secret, short bad compainies not good ones. "

This is terrible advice.

[Cazz]

You might look at World Poker Tour (WPTE).
They didn't turn a profit last quarter
and you have to think this is a favorable
environment.

[adios]

[ QUOTE ]
Number one reason being that incredible growth is already priced in and certainly not sustainable.

[/ QUOTE ]

Probably but not sure about that.

From a web site:

Party Poker IPO Article (http://www.playwinningpoker.com/guides/party-poker/)

Upon the announcement that Party Poker's parent, Party Gaming, might pursue a public offering on the London Stock Exchange, financial publications speculated the value of the IPO could be as much as a staggering $10,000,000,000. That number is based on a comparison to Sportingbet PLC. In October 2004, Sportingbet purchased the (at the time) number three online poker cardroom, Paradise Poker, for between 300 and 400 million dollars (depending on performance figures for the next year). At the time of purchase, Sportingbet traded for about 100 on the London Exchange. Only three months later, at the time of the PartyPoker announcement, it was trading at 235.

Since Sportingbet is trading now at about twenty times next year earnings, and PartyGaming is speculated to make in excess of 500 million dollars in 2005, that leads to the ten billion dollar number. That seems a bit high, but still, a Party Gaming IPO should end up between eight and ten billion, immediately establishing it as one of the 100 largest companies on the London Exchange.

Doesn't seem to be incredibly expsensive given a forward looking PE of 20 for next year but that's all I'm going on which admittedly isn't much. If PartyGaming margins are high (which I suspect they are), then I'd say even with increased competition they'll make a lot of money. Not sure about PartyGaming financials at all though. I'll try and find out more. Interesting, nice post and FWIW I commend your use of the 'old noodle' on this /images/graemlins/smile.gif.

[erniebilko]

You can't short new issues.

[diddle]

short this if you want to go broke. seriously

other gambling stocks (http://finance.yahoo.com/q/cq?d=v1&s=wpte+cryp+nlr.l+spbtf.pk)

all my cash is either in those, or my WSOP bankroll. I'm going to hold them through the beginning of the Party IPO (few months) then reevaluate.

been making a killing on these over the past year

[RedManPlus]

Free money. Bwa-ha-ha-ha-ha.

In general...
Shorting stocks is for pros...
And a pro would never, ever short...
A high flying "irrational" tech stock.

It's called "fighting the tape"...
A fight you'll lose 90% of the time.

Other than extremely talented short term momentum traders...
Pros stick to stocks that trade in a rational way...
And build rational "risk arbitrage" positions.

But then you wanna gamble...
Be my guest.

rm+

/images/graemlins/cool.gif /images/graemlins/cool.gif /images/graemlins/cool.gif

[TRBNGR]

[ QUOTE ]
Free money in the long term, no?

Number one reason being that incredible growth is already priced in and certainly not sustainable.

[/ QUOTE ]

GOOG

[meow_meow]

Worst Idea Ever....

First, on what are you basing your belief that growth is priced in?
Looks like it will be trading at a forward PE of about 20, not super cheap for a company in a mature industry, but does that really describe partygaming?

Do you expect Party's growth to come to a dead stop this year? next year?

[Dan Mezick]

Alot of people believed that about AMZN at IPO time and got a lesson in forced awareness.

[solucky]

I bought today empire and paradise, and i also will buy a few partys. 20 times earnings is not cheap, but also not really expensive. I guess 50% profit next 3 years is possible.

Wolfgang
PS: If the shares dont work it means poker is tightend up soon or go down soon...that would make me more nervous

[michiganfan9]

definitely goog

[michiganfan9]

[ QUOTE ]
Worst Idea Ever....

First, on what are you basing your belief that growth is priced in?
Looks like it will be trading at a forward PE of about 20, not super cheap for a company in a mature industry, but does that really describe partygaming?

Do you expect Party's growth to come to a dead stop this year? next year?

[/ QUOTE ]
For me atleast I see it totally the opposite. I can't see poker playing slowing down anytime soon

[Harmonica]

I wouldn't be so quick to dismiss shorting this share, because I have been looking to buy some shares in party, but they have had to already cut the price on its float price, also the grey markets have already been quoting ranges below the new ipo price range, which isn't good, all because of this scare mongering [censored] that is going on, I have heard mixed reports that the banks are have had a tough time shifting the shares and in the next breath I have heard the more specialised instituitions saying that they are really shifting shares, so who's telling the truth, add into all of this that empire online has lost nearly 15% of its value in only 2 days of trading, because of peoples concerns over the party deal, I have heard also that people reckon the price could drop quite a bit on its first day of trading, which leads me to ask this question why do the instituitions buy shares in ipo's, if they know that the share price is going to fall when the company starts trading???

[ewile]

[ QUOTE ]
short this if you want to go broke. seriously

other gambling stocks (http://finance.yahoo.com/q/cq?d=v1&s=wpte+cryp+nlr.l+spbtf.pk)

all my cash is either in those, or my WSOP bankroll. I'm going to hold them through the beginning of the Party IPO (few months) then reevaluate.

been making a killing on these over the past year

[/ QUOTE ]

snda
buy break over 40 target 45. Sell and wait for the next breakout.

[wildwood]

Understand that people's opinions of whether a stock will go up or down are just that...opinions. Nobody knows for sure including the "experts". The market is always right, and it will gladly take your money if you argue with it. If your serious about shorting, read "How to make Money Selling Stocks Short" by William J. O'Neil and Gil Morales. Then you might have a chance. Never short a stock making new highs. fwiw

[BradleyT]

http://www.guardian.co.uk/business/story/0,,1507504,00.html

London's biggest stock market flotation for years has been overshadowed by advice from Washington that the four dotcom millionaires behind the venture risk arrest and prosecution in the United States.
PartyGaming, operator of a hugely profitable poker website, is expected to be valued at £4.76bn when it floats on the stock market in 11 days' time.

The offering will transform one of its owners, Ruth Parasol, the daughter of a former San Francisco massage parlour tycoon, into one of the most successful female entrepreneurs in history.

While the company's activities are legal in the UK, the US justice department is warning that operators of online gambling enterprises could be prosecuted and, if convicted, jailed for years in America.
Internet gambling companies occupy a legal grey area in the US, with many in the industry insisting that case law shows them to be legitimate, while the justice department insists they are outlawed.

According to the department, online gambling operators such as Ms Parasol, 38, her husband, James Russell DeLeon, 39, and their partners, Indian computing experts Anurag Dikshit and Vikrant Bhargava could face prosecution under three federal statutes: the Interstate Wire Act, the Illegal Gambling Business Act and the Travel Act. These carry penalties of between two and five years' imprisonment for each offence.

The company prospectus, published yesterday, concedes that its activities "are considered to be illegal by the relevant authorities" in the US, but says case law has established that online poker sites are excluded from the legislation controlling gambling. It also says its four founders have travelled in and out of the US with impunity.

Ms Parasol and Mr DeLeon have declined to give interviews, refused to be photographed and are rarely sighted in Gibraltar, where their company is registered and they are said to be living. Mr Dikshit, 33, is also maintaining a low profile, leaving Mr Bhargava, 32, as the public face of PartyGaming.

The company denies that is due to concerns over the legal position in the US, and insists that the company's founders want only to lead normal lives after the flotation.

The justice department's warning is likely to increase anxiety among US investment institutions, some of which are reported to be reconsidering whether to back PartyGaming.

When the company announced a flotation price of between £4.4bn and £5.1bn yesterday, instead of the widely predicted £5.5bn, it rejected claims that the cut was in response to those jitters, insisting that the price tag was a "realistic assessment" of the company's worth.

A senior justice department official told the Guardian: "Any business offering online gambling services that are in the United States or can be accessed in the US are illegal.

"The focus today is on how we can do more about it [online gambling] and how we can charge people. If they are American citizens, it would be a little easier for us. They can face prosecution if they enter the United States."

A successful flotation in London, with the vast injection of capital that would bring, would make little difference in Washington, the official added.

"If they're taking bets in the UK, and it's legal there, that's fine; but if they're taking bets in the United States, that's il legal, and they will be prosecuted."

PartyGaming disputes the justice department's interpretation of the law in the US, and said yesterday that no company offering similar online gambling services had ever been prosecuted there. A spokesman added: "The US does not have legislation specifically regulating online gaming and therefore there is uncertainty as to its legality."

[BradleyT]

http://news.independent.co.uk/business/comment/story.jsp?story=647148

PartyGaming: a case of too good to be true

There are 27 pages of risk factors to read in the PartyGaming prospectus, which must be something of a record. Can even online poker be this risky, or have the founders truly hit upon the proverbial licence to print money? For Michael Jackson (no, not that Michael Jackson), the chairman, and Brian Larcombe, senior non-executive director - both brought in to add a veneer of respectability to this somewhat dodgy enterprise - it's very much the latter. They collect £1.5m and £1m apiece for simply lending their good names to the flotation.

PartyGaming generates oodles of cash from it's online poker tables and if this were any normal company, its current earnings would more than justify the £4.4bn to £5.1bn valuation the sponsors are hoping to achieve. Only, of course, this is not a normal company. PartyGaming has come from nowhere in just eight years, with most of its growth taking place in the last two.

What's more, the company doesn't need to float at all. There's no new money being raised. All possible business expansion can be easily funded from cash flow. All the proceeds of the float go instead straight into the pockets of the founding shareholders. The question that must always be asked in such circumstances is: "if this is such a great business, why are the founders selling?"

The obvious risk for investors is that a bit like the Spice Girls, PartyGaming will disappear as quickly as it arrived. The chances of this happening are quite high even if you think online poker is a here to stay phenomenon with continuing explosive growth potential. Great tracts of the prospectus are devoted to the possibility of a regulatory crackdown in the United States, where online betting is arguably illegal.

With nearly 90 per cent of PartyGaming's revenues coming from the US, the company is plainly highly exposed. Directors draw comfort from a relatively recent court ruling which seemed to draw a distinction between online sports betting, which is definitely illegal, and other forms of online gambling. Be that as it may, the prospectus bluntly admits that "the group's activities are considered illegal by relevant authorities". This may be the first time a company of such magnitude has been floated on the back of an overtly illegal activity.

Yet the bigger threat to PartyGaming is actually the other way around.

The fact that online gaming is legally dubious in the US is what has given PartyGaming and other fly-by-night, Gibraltar-based upstarts their opportunity. Paradoxically, it has created a formidable barrier to entry in an industry where such barriers would otherwise be non existent.

If online gaming were indisputably legal, then a whole host of American internet content providers would by now have steamrollered PartyGaming and its coterie of imitators out of existence. The company's sky high return on sales of more than 50 per cent would already have been competed away. The longer the legal status of online gaming remains uncertain, the better it is for Britain's newest stock market sector. Yet to gamble on your company's core activity remaining illegal doesn't look a sensible investment strategy to me. PartyGaming is just too good to be true. Best stick to poker.

[eric5148]

[ QUOTE ]
Here's a secret, short bad compainies not good ones.

[/ QUOTE ]

Not only is this oversimplified, it's just plain wrong.

[Sniper]

[ QUOTE ]
Here's a secret, short bad compainies not good ones.

[/ QUOTE ]

NOT... the secret is... Short OVERVALUED companies not undervalued ones.

[wildwood]

When making a decision to short a company, whether or not the company is overvalued is not as important as the buyers and sellers perception of the company. Let's take google for example. Is the stock overvalued? By most measures, the answer is yes. Could it go up another $100 or more? Of course, as long as the buyers outnumber the sellers. Jim Rogers, a very successful investor, said he shorted memorex at $47; I was absolutely right, he said, because the stock went to $2. The only problem was, it went to $97 first. A short sellers losses are in theory infinite. That's why you only want to short sell weakness and use a stop loss to control risk. fwiw

[AceHigh]

[ QUOTE ]
NOT... the secret is... Short OVERVALUED companies not undervalued ones.

[/ QUOTE ]

Maybe I should have said, "short bad overvalued companies." I thought that was sort of redundant. I don't think it is sufficient to say short overvalued companies. A company like Ebay or Google can be appear overvalued, but has it potential priced in, so to say only that "an overvalued company is company to short" is not correct either.

[BradleyT]

[ QUOTE ]
When making a decision to short a company, whether or not the company is overvalued is not as important as the buyers and sellers perception of the company. Let's take google for example. Is the stock overvalued? By most measures, the answer is yes. Could it go up another $100 or more? Of course, as long as the buyers outnumber the sellers. Jim Rogers, a very successful investor, said he shorted memorex at $47; I was absolutely right, he said, because the stock went to $2. The only problem was, it went to $97 first. A short sellers losses are in theory infinite. That's why you only want to short sell weakness and use a stop loss to control risk. fwiw

[/ QUOTE ]

Nice post. I feel the same way about WPTE. It's way overvalued but could easily rocket upwards before going back to $12.