Amaya Inc. Provides Exposure to a Market That’s Bound to Explode

Whether local and federal governments want to admit it, online gambling is an incredible way to generate tax dollars to fill the coffers for other programs. Due to this slow but steady acceptance, online poker, gambling games, and betting are all expected to grow in the coming years as more localities pass regulations for online gambling sites.

One company that looks to benefit from this the most is Amaya Inc.  (TSX:AYA)(NASDAQ:AYA), one of the largest online gambling companies in the world. And by purchasing shares today, you get to ride a market that will be significantly larger than it is today by the end of the decade.

In June 2014 Amaya initiated an acquisition of two of the largest online poker brands, PokerStars and Full Tilt Poker, paying $4.9 billion. While this was one of the largest acquisitions ever in the online gaming space, these two brands account for 71% of the market share in online poker, so as the market grows, they’re primed to grow as well. For the past couple of years Amaya has had 2.2-2.5 million monthly users on its poker sites.

Recognizing that it needed to increase its margins, Amaya began to roll out new casino games, which have unlimited potential for earnings, unlike poker games. And growth in these games has been incredible; they’ve grown from 270,000 players in the first quarter of 2015 to 470,000 active players a year later.

Finally, during the summer of 2015, recognizing that more people were taking their sports betting online, it launched Sportsbook, an online gambling portal where 170,000 people bet on sports last quarter.

Its first-quarter numbers show that things are going nicely for the company. Total revenue in Q1 was US$288.7 million, up 6%. Its casino and Sportsbook revenue was up 267% to US$60.1 million, which partially explains why poker revenue was down 11% to US$216.4 million. As I said above, margins are greater for casino games, so this should be seen as a net positive. All in all, the company’s adjusted net earnings for the quarter was US$85 million, up from $67.4 million in the year prior.

But there are moves in play that I believe will make Amaya even stronger over the next few years.

The first is that it plans to merge Full Tilt and PokerStars into one mega-brand. By combining the players into one giant site, there’s the potential for more gaming overall, which will increase revenues for the company.

Further, it plans to expand into the United States. It launched in New Jersey in the fall, quickly gaining 46% of the market share. While that’s not nearly as high as its 71% worldwide, it’s a marketing play. As more people learn that Amaya is operational and that there is simply more liquidity on that site, people will migrate.

Finally, it is getting aggressive with expansion in Europe. Its poker and casino games are going to become operational in Portugal in the second half of 2016. It has also received approval for its Sportsbook product in France (which occurred before the Euro 2016 event) along with Italy, Spain, and the United Kingdom. Soon, it will have approval from Russia as well, opening the floodgates for new users.

Amaya is an interesting tech company focused on a niche that I believe is primed to explode. As more regions agree to allow online gaming, Amaya is primed to generate increased revenue, stronger margins, and ultimately become a juggernaut. I say buy.

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Fool contributor Jacob Donnelly has no position in any stocks mentioned.

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