Online casino games maker NetEnt sees room for further expansion

Reuters News
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Posted: Mar 04, 2016 7:44 AM

By Mia Shanley

STOCKHOLM (Reuters) - Sweden's NetEnt, which makes online slot machines and roulette games, wants to double its share of the global market to 30 percent despite doubts about whether it can sustain its rapid growth and an uncertain U.S. regulatory landscape.

NetEnt is one of a cluster of tech firms in Stockholm which are punching above their weight globally, the best known being music streaming site Spotify. It was founded 20 years ago by Pontus Lindwall whose father built Sweden's largest restaurant casino operator and whose mother was a croupier.

The Swedish firm has recently signed contracts with casino operators in the United States, Britain and Spain to produce online games ranging from blackjack to poker. Earnings rose more than 50 percent last year and the share price doubled to give a market value of around $2 billion.

"We still have big growth potential in Europe. We have approximately a 30 percent market share and that means 70 percent to take," CEO Per Eriksson told Reuters.

"Then, we have the U.S. waiting for us and that is something we are looking forward to," Eriksson added.

NetEnt employs 750 people in Sweden and Malta and is expanding to Krakow and Kiev to find programmers. Its biggest competitors are London-listed Playtech, founded by Israeli billionaire Teddy Sagi, and privately owned Microgaming Software Systems.

SLICE OF AMERICAN PIE

Eriksson believes increased mobile phone gaming, state lotteries and even revenues from digital games placed inside actual casinos will all help drive growth.

With the global industry expanding about 10 percent annually, some analysts ask whether NetEnt can keep up its rapid rate of growth after revenues jumped by a third last year.

It is one of a number of gambling companies that have bet on a loosening of the rules in the U.S. market.

New Jersey was among the first states to allow online gambling and NetEnt has signed on most major operators there. Pennsylvania may be next, creating what Eriksson hopes will be a domino effect across the east coast.

H2 Gambling Capital, which provides forecasts for the industry, said any U.S. nationwide initiative on the industry would create a market worth $6-$8 billion in gross wins overnight, about one-fifth of today's global online winnings.

"The U.S. is at the bottom of the shift to real money in iGaming and there is huge potential for it to grow if it is ever widely regulated," said H2 Founder Simon Holliday.

His baseline assumption is, however, that regulation will happen slowly on a state-by-state basis.

VOCAL CRITICS

After graduating from the Royal Institute of Technology in Stockholm, founder Lindwall saw potential in taking games online.

"I did the pay tables behind the slot machines, calculating how it works under the hood," Lindwall said. "My father said if you want to have good games you have to make sure the player wins a lot. I knew how to do the math to make that happen."

Fast forward two decades and one of NetEnt's fastest-growing products is Live Casino, in which players watch real dealers in real time and can place bets on games. That will be launched on mobile phones this June.

Playtech and local Swedish rival Evolution Gaming, started by former NetEnt employees, were first movers in the Live Casino market.

CEO Eriksson concedes that investments in new offices and products might temper margin growth this year.

There are other clouds on the horizon in the form of higher taxes and concerns that the ease with which players can now gamble online risks fuelling addiction.

France slapped taxes on operators totaling more than 30 percent and NetEnt saw revenues there dry up overnight in 2009 as customers left. Gambling companies in Britain have also been hit by new taxes targeting their growing online business.

Eriksson is bemused by the opposition to online gambling.

"I feel it's a little bit like rock-n-roll in the 50s, when people said it will destroy everything," he said. "But it's here to stay."

(Reporting by Mia Shanley; Alistair Scrutton)