Still Sour on the World Poker Tour (WPTE)
It’s been nearly one year since the World Poker Tour (NSDQ:WPTE) went public after spinning off from parent company Lakes Entertainment (OTC:LACO). The once-hyped IPO opened at a disappointing $7/share after analysts questioned whether the stand-alone WPTE could achieve profitability from revenues generated solely from their televised Poker Tournaments.
Fast forward to earlier this summer where shares surged past $15 after WPTE announced they would be joining the online Poker craze by launching WPTonline.com. The timing was ideal as PartyGaming (LSE:PRTY), owner of PartyPoker.com, had just went public garnering an $8 billion IPO price tag.
Then poker legend Doyle Brunson added more fuel to WPTE’s roaring stock price. On July 8th, Brunson and a group of financial backers made an unsolicited bid to buy the whole company for $700 million in cash. The offer was double WPTE's closing price of $17.75. The news boosted WPTE shares by 56% the next trading day peaking at $29.50!
But right away, it was apparent that something was amiss. The $700 million offer valued WPTE at $34/share. So why the big gap? WPTE released further information on July 11, stating that it had contacted Brunson to get more information and that he "suggested that WPTE should not expect any further contact regarding the offer." Shares tumbled.
After peaking in early July, the World Poker Tour has since shed over half its value sitting around $12 today. Is this now a potential value play? Not quite yet. While the World Poker Tour brand name undoubtedly possesses great potential in one of the hottest industries, it should continue to suffer several negative catalysts in the short-term:
1.) Online traffic at WPTonline.com continues to disappoint. A quick check at the site shows only a couple hundred players playing at any given time. Compare this to PartyPoker.com who consistently hosts well over 10,000 players daily. Keep in mind that American players are not allowed to gamble on the site with WPTE being an American company.
2.) The company does not have an auditor. They were dropped by Deloitte & Touche after the accounting firm claimed WPTE was too small and did not want to "get their arms around" the online gaming business. This seems odd considering Deloitte & Touche also audits International Game Technology (NYSE:IGT), the leading slot machine manufacturer which also recently acquired Internet-Gaming firm WagerWorks. This auditing departure comes only 2 weeks before the quarter meaning WPTE should be late in filing until finding a replacement. Every day that goes by without an announcement should pressure the stock further.
3.) Last week, WPTE surprised analysts & investors by swinging to a $0.4 million loss on $6.6 million in revenues ($0.02 per share).
4.) Massive Insider selling continues.
5.) The Doyle Brunson conspiracy. Was this a classic “pump & dump” ploy? Were WPTE insiders involved? I wouldn’t be surprised if the SEC investigated the bluffed buyout, which would not be positive PR for the company.
From a business standpoint, WPTE is in decent shape as the company's licensing businesses are profitable. But from an investment standpoint, the stock is a bit of a gamble: The online business could be worth zero, in which case the stock is probably worth about half its current price. If WPTE is to justify its $250 million market cap, WPT Online must deliver. The online poker site officially launched at the end of the second quarter. Interestingly, the company accounted for zero contributions from online gaming in its third-quarter forecast, instead noting that any significant contributions may not come until toward the end of the year at the earliest. With the WPT Online hype fading and the reported loss last week, WPTE should continue to drop past $10/share.