Although I have not been able to locate a copy of the prospectus
online, the proposed Empire Online quotation has attracted
considerable press attention.
Regarding the $1 billion valuation: it is important to note that until
the company actually goes public, it is impossible to know what the
market will value it at. The underwriters have considerable interest
in generating as much hype as possible, and they are frequently wrong.
"Empire Online is expected to hit the market in the first two weeks
of June and the issue is expected to be in the $225-275 million
range...," which would require significant underpricing in order to
reach a $1 billion valuation ("EMPIRE ONLINE LISTING CONTINUES TO MAKE
THE HEADLINES" Casinomeister (3 June 2005)
http://www.casinomeister.com/news/june2005.html#empire).
However, according to reports, the offering is popular, so perhaps
this will occur. "Given the surge of demand in Israel and England,
the underwriters said they are considering increasing the scope of the
IPO." "Israeli Firm?s $1.0B IPO Plan" Red Herring (June 1, 2005)
http://www.redherring.com/Article.aspx?a=12222&hed=Israeli+Firm%E2%80%99s+%241.0B+IPO+Plan
The company is one of several plays coming to market based on the
popularity of online gambling in general, and the popularity of poker,
especially in the United States. "The prospectus also reveals that
most of the gamblers are from the US. At the end of March 2005, there
were 186,000 players from the US, representing 70.8% of the company's
customers." "Most of the company's revenue derives from referrals of
gamblers to poker games."
"Empire Online's opportunities and risks" by Ofer Levi, Globes (June
1, 2005) http://www.globes.co.il/serveen/globes/docview.asp?did=920112&fid=942
The firm's business model is based on attracting gamblers to various
gambling sites that it has a relationship with. "Empire Online is in
essence a company that generates surfer traffic for the various kinds
of gambling sites. It mediates between the sites and the gamblers, and
uses various advertising means, such as banners, to capture gamblers
and bring them to the gambling sites with which it has cooperation
agreements.
Empire Online benefits from a substantial percentage cut of the
revenue the gambling sites make as a result of the links to them. The
percentage also includes the rake that the sites charge each player.
Empire Online's business is almost entirely based on two gambling site
operators. The most important is PartyGaming, which accounted for 72%
of Empire Online's 2004 revenue, which amounted to $65 million. The
second is Cassava, controlled by Ari and Aharon Shaked and Shai and
Ron Ben Yitzhak, which accounts for 27% of Empire Online's revenue.
According to recent reports, Cassava too has begun a flotation
process, and is expected to list on London's main market at the
fantastic value of $1.6 billion.
The risk of being based on these two operators is pretty big
considering that Empire's collaboration with both could be ended quite
suddenly. In its prospect, Empire online states that the contract with
Cassava could be ended by either party for any reason, and that the
contract with PartyGaming could also be ended at short notice for a
wide variety of reasons." "Empire Online's opportunities and risks" by
Ofer Levi, Globes (June 1, 2005)
http://www.globes.co.il/serveen/globes/docview.asp?did=920112&fid=942
This risk is not trivial in my opinion. At least one gambling advice
website advises gamblers to register directly with Party Poker instead
of Empire Online because Empire Online does not run the card room and
is merely a skin. "Empire Poker is a "skin" of PartyPoker.com, the
largest online poker cardroom on the Internet. EmpirePoker does not
actually exist as a stand alone card room. It is merely a doorway into
Party Poker.
Since it is against their rules to have both PartyPoker and
EmpirePoker.com accounts, I recommend that you open an account with
PartyPoker instead since it is the actual parent cardroom." "Empire
Poker-Empire Online"
http://www.playwinningpoker.com/guides/empire-poker/
"Empire Online markets gambling sites, including 888.com, CasinoOnNet,
and Pacific Poker, owned by Cassava Enterprises (Gibraltar) Ltd.,
owned by Ari and Aharon Shaked and Shai and Ron Ben Yitzhak. Empire
Online does not operate its own gambling sites, and has no gaming
technology." "Online gambling co Empire Online mulls London IPO at
$1b value" by Gali Weinreb and Tali Tsipori, Globes (May 25, 2005)
http://www.globes.co.il/serveen/globes/DocView.asp?did=917437
"Empire Online?s core business is online marketing and it is major
provider of traffic to casino giant 888.com.
But it is also the owner of the largest skin in the Party Poker
network, which it has been operating since 2002." "Empire targets AIM
for June listing" egaming review (June 3, 2005)
http://www.egrmagazine.com/cgi-bin/articles.pl?section=3&id=782&action=display
"Offering a venue for gambling is one thing, but luring in bettors is
another, explained Mr. Lanir. The secret to success is achieving a
critical mass of surfers, which is where Empire Online, a 70-man
company registered in Cyprus, comes in.
With its clever marketing techniques, it has helped create some of the
world?s biggest gambling sites, including 888casino, Pacific Poker,
and EmpirePoker.com." "Israeli Firm?s $1.0B IPO Plan" Red Herring
(June 1, 2005) http://www.redherring.com/Article.aspx?a=12222&hed=Israeli+Firm%E2%80%99s+%241.0B+IPO+Plan
The company has experienced very rapid growth, high revenues per
employee, and very high profit margins. These facts are what are
attracting investors to the flotation. "Empire points out that,
during 2004, 37,000 new gamblers who actively used the gambling sites
with "real money" signed up for its services. Another 4,000 a month
joined during the first quarter of this year." "Empire Online's
opportunities and risks" by Ofer Levi, Globes (June 1, 2005)
http://www.globes.co.il/serveen/globes/docview.asp?did=920112&fid=942
"...[F]or the year 2005 Empire Online is expected to net $66 million
on $100 million in revenues earned purely from marketing techniques
for gambling sites. In 2004, the company netted $37.7 million on
turnover of $65.2 million." "Israeli Firm?s $1.0B IPO Plan" Red
Herring (June 1, 2005)
http://www.redherring.com/Article.aspx?a=12222&hed=Israeli+Firm%E2%80%99s+%241.0B+IPO+Plan
"Even though the firm provides the technology behind the gambling
sites, and does not service the gamblers directly, it still projects
revenues of almost $2 million per employee, of which a cool million is
expected to represent profit." "EMPIRE ONLINE LISTING CONTINUES TO
MAKE THE HEADLINES" Casinomeister (3 June 2005)
http://www.casinomeister.com/news/june2005.html#empire
"...Empire Online is based in Cyprus where it employs around 60
people." "Empire targets AIM for June listing" egaming review (June
3, 2005) http://www.egrmagazine.com/cgi-bin/articles.pl?section=3&id=782&action=display
"Tamir Fishman CFO Daniel Leventhal said: "When I only saw the planned
value for the company, I assumed that the multiples would be very
high. When I saw the company's results, I realized that the multiples
were quite standard"." "Israeli e-gambling company considers $1b
flotation" GamblingGates.com (May 27, 2005)
http://www.gamblinggates.com/news/casino/israel-marketing97091.html
"Daniel Leventhal, chief financial officer at Tamir Fishman, described
the issue as a golden opportunity. "It's a highly interesting company
with high turnover, tremendous profits and enormous growth. Given its
profit margin, a billion-dollar company valuation isn't out of the
question: It's entirely reasonable," Leventhal said." "EMPIRE ONLINE
LISTING CONTINUES TO MAKE THE HEADLINES" Casinomeister (3 June 2005)
http://www.casinomeister.com/news/june2005.html#empire
Given that these last two quotations about valuation are from an
underwriter who has considerable interest in hyping the offering, they
have to be taken with a grain of salt. However, a forward
price-to-earnings ratio of about 15.4 ($1 billion/$66 million) is not
necessarily outrageous given the firm's rapid growth and
profitability. The forward-looking PE ratio for the S&P 500 is about
15.6. Obviously Empire Online is much more risky than the S&P 500,
but it is also growing much more rapidly with much higher
profitability. Many Internet companies had huge valuations with much
higher PE ratios during the recent Internet boom. Of course, many of
them turned out not be justified.
I hope these sources and comments give you the perspective you are
seeking on the forecasted valuation of Empire Online.
Sincerely,
Wonko
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