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INTERNET GAMING PERSPECTIVE
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Wednesday June 9, 1999
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Hello everyone,
The only thing that has been quieter than IGP has been Internet Gaming
stocks. In the last few months, there has been no money coming into this
industry from investors. Everyday we have been watching the stocks carefully,
and everyday it is the same story: nothing! Before we begin our release of
new company profiles and research, we felt the need to examine the state of
the industry as it now stands, and look to explain the lack of investor zeal
and when things should turn around.
Back in late November, we saw stocks such as Starnet (SNMM), Global
Intertainment (GGNC) and GLC Ltd.(GLXW) soar in price as anxious investors
jumped on board due to the irresistible attraction that these stocks offered
at such low prices. Due to the great amount of expendable cash that
investor's had at their disposal thanks to the out-of-control Bull Market, it
was nothing for them to throw a few thousand dollars toward Internet Gaming
stocks in the hopes of doubling their money. It was at that time that I
coined it the, "What the heck" principle. "Why not take a crap shoot and see
what happens"- was the sentiment of most investors at the time. As a result,
investors didn't double their money, they, at the minimum, quadrupled it.
Some even made up to 2,000% on their initial investment. From there,
investors took profits from Starnet, GGNC, GLC Ltd., and others and threw
some more money into some of the other penny stocks. And the game had begun.
This is not an uncommon scenario for a new industry. And for those who like
the excitement and prospect of taking a chance on a penny stock, it proved
fabulous. But as the stocks got higher in value, investors took a closer
look. After taking some of their chips off of the table, the daily jumps and
three-fold increases began to slow. Furthermore, investors got wise to much
of the hype that is generated by small cap companies who are looking to
increase stock value. Add to that the market makers who kept shorting these
stocks- and caused that to carry over to the average investor who was not
going to sit on a volatile investment that had more highs and lows than the
Nevada desert temperature scale. Once the initial splurge was over,
investors, who made phenomenal returns, took most of their profits and sat
back awaiting the next step: which are the real companies and which ones are
going to capture the market?
But the fundamental reason for the sluggishness of this industry has not been
with the companies, nor has it been with its failure to blossom- rather, it
has been with the general misconception of facts on the part of the investing
public due to the "Legal" issue that most feel will define its future. This
is what I want to take a closer look at.
THE LEGAL ISSUE------
"Aren't they going to outlaw that stuff?". That's seems to be on the tip of
everyone's tongue. There's much ado about the Kyl Bill- the bill sponsored by
Senator John Kyl (R- AZ) that seeks to ban all forms of Internet Gaming.
However, it is the publicity of this bill, and the lack of awareness on the
part of the investing public that has caused investors to freeze in their
tracks before buying into these stocks. So what can be said to an interested
investor who, aside from the threat of prohibition, would jump at the chance
to invest early in this incredible industry? There are several issues that
need to be addressed:
1. There is no guarantee that the Kyl Bill will ever come to pass. It did
pass the Senate originally, however it was tabled by the House. Furthermore,
the Justice Department issued their analysis of the Kyl Bill and stated
unequivocally that it would be "unenforceable". The crux of the problem lies
not with the moral aspect, though that is a concern, rather it lies with the
fact that the Internet has changed our global economy faster than we can
change with it. The natural response from the government would be to outlaw
until they can "control" it and get their "piece" of it. Make no mistake
about it, it is the government's inability and incapacity to "regulate" it
that is bringing this about. In essence, if they had a sure way to tax
Internet Gaming, there would be no problem (moral issues aside).
But the Kiel Bill cannot and is not stopping this industry. Remember, this is
GLOBAL. This is not a United States issue. With huge markets such as Asia,
Europe and other first world countries not only inviting it, but legalizing
it, we have a tremendous "untapped" market around the world that will still
bring billions of dollars in wagers into these companies. That is already the
case. Those who follow this industry on a daily or weekly basis have seen
that the revenues from wagering have grown anywhere from 100% to 500% from
quarter to quarter depending upon which company it is. Revenues have grown
exponentially and WILL CONTINUE TO DO SO.
Should the Kyl Bill pass- or some form of it- then that will only make it
illegal "on the books". Law Enforcement is ill-equipped and ill-financed to
investigate and prosecute individuals who place wagers via the Internet. And
they would have to prosecute the individuals, because due to International
Law, the U.S. cannot prosecute a company whose location is outside of the
borders of the U.S. It is this that the Justice Department has demonstrated
will make the Kyl Bill- or any other bill for that matter- USELESS.
2. As time marches on, the industry is making great strides in its attempts
to bring about a solid regulatory approach which will, most assuredly, make
far more sense and allow great tax revenue to be generated for the U.S. The
more time that passes, the more the industry can mature and establish itself-
and the BETTER the chances that the government will be ready to regulate, as
opposed to outlaw Internet Gaming. The industry's main self-regulatory body,
the Interactive Gaming Council, is doing a fine job working with this and
other governments in the attempt to bring about a world-wide regulatory
standard to address all concerns and aid in the taxation in the various
jurisdictions.
Therefore, until the public understands what is at stake, and takes a closer
look, investors are hesitant to invest. Aside from the core group of
investors who have been and continue to rest on the sidelines awaiting the
next step, there has been no new influx of money into this industry- even
though the companies are growing, the industry is growing, and as far as I am
concerned- there are great bargains available and truly UNDERVALUED stocks!
OK- THE INDUSTRY IS MAKING MONEY. SO WITH WHOM SHALL WE INVEST?
That is the next question. Unfortunately, when dealing with small startup
companies, many of which are not fully reporting, we must go by the little
information that we have. In an earlier issue, I outlined key things to look
for concerning these companies- and how to decide upon which are worth their
weight in gold. You may visit our archive section (which will soon be our
extensive research section) at www.igp.nu - click on the archive link
toward the bottom and then, on the archive page, click on the "Present State
of the Industry" issue from February.
It is obvious after this amount of time that certain companies have developed
a name for themselves. The biggest of which, as I see it, are Starnet and
Cryptologic. At this early point in time, these are the software development
companies that have done well due to the influx and demand for companies to
venture into Internet Gaming. Time and time again- we see these company names
popping up each time another company commences operations. It is like opening
a coffee house- using your own ideas and styles- but you buy you actual
coffee beans from the same company as everyone else. You may not make it, but
the man from whom you bought the beans will.
IGP is in the process of researching new companies. We've been in no rush
because we have felt that the investor sentiment was not there to warrant an
issue. However, we feel that the time has come for a "jump-start", if you
will, to inform our readers that the Internet Gaming industry is GROWING.
Revenues, new wagerers, and bottom line profits are growing exponentially.
So, when the time comes that the investing public realizes this, then the
money should come in from the street.
Internet stocks have been unreal- in terms of their return. Companies like
Yahoo, eBay, Amazon.com and so many others saw their shares hit in the
hundreds of dollars. This was due to the anticipation of the money that will
be earned on the Internet. It is only a matter of time before this happens in
this industry. What's more, Internet Gaming companies have been turning
profits- even at this early point in time. Can you imagine where it will be
in 3 years? So rest assured, folks, it won't be long before we will be
sitting back and being thankful that we were all here at the beginning.
There should be some good news out this week on some of the companies. GGNC
is about to release their audited financials- and have stated their goal to
become fully-reporting. If their numbers line up with all of the hype that
they had put forth, that stock should be back up to where it was (in the
$4-$6 range), and should then be in position to start moving beyond its
resistance price.
Total Entertainment (TTLN), another no-debt company will be releasing their
quarterly report this Tuesday. They have an incredible marketing plan for
Asia and should be quite successful. They recently launched Dragongaming.com
in Asia. The lawsuit filed against them by SBET has been dropped, and the
stock has begun to recover from the negative attention this had given TTLN.
Volume this week was extremely heavy and looks promising for a good move-
should their numbers reflect more growth. They went public in October and saw
a 1/2 cent EPS for their first quarter, followed by a 1 cent EPS the
following quarter. This is a company we shall be reporting on very soon. We
like what we see.
Another company we will be highlighting is PrincessNET Technologies. Based in
Tel Aviv, Isreal, this company is not yet public, but they have an
interesting concept called "Bet and Chat". This turn-key software that they
license allows people to play casino games along with other people around the
globe. This is the technology that is the forerunner of what I called the
future of Internet Gaming- virtual casinos using virtual reality type
technology. For now, you can chat with others, but in the future, you'll be
sitting next to them in a virtual world. (Who said land-based casinos will
always be more popular?) This will bring the land-based casino to the world
of virtual reality and allow poeple to visit one from the comfort of their
own home. Stay tuned for more on PrincessNET.
Other reports we will be releasing will be on eVegas.com, formerly e-Casino
Gaming Corporation- as well as Inland Entertainment (INLD)- one of the less-
volatile, older companies that have been around.
Stay tuned for these and other reports soon to come.
Happy Investing!
THE INFORMATION CONTAINED WITHIN THIS REPORT IS BELIEVED TO BE ACCURATE.
HOWEVER NOT GUARANTEES CAN BE MADE AS TO ITS ACCURACY. PLEASE CONSULT WITH A
LICENSED FINANCIAL ADVISOR BEFORE MAKING ANY INVESTMENTS INTO ANY OF THE
COMPANIES DISCUSSED WITHIN THIS REPORT. |
