Crypto Shares Rattled on Tough Trading Update

31 July 2008

CryptoLogic Ltd., the software developer, lost 10 percent of its London share value Thursday after announcing second-quarter revenue is likely to be impacted negatively by seasonality and the 2008 UEFA European Football Championship.

"The company expects its revenue for the second quarter of 2008 to be lower than the level achieved in the first quarter of this year, but modestly higher than in the same period in 2007," it said in a stock exchange statement.

General, administrative and operating costs, meanwhile, are expected to be higher, especially on development consulting regarding new product development and launches.

While the company did not elaborate, it will also be spending an undisclosed sum to protect its intellectual property; however, it said it expects to recover "this IP-related cost" in the future.

"The unusual effect of these factors will result in a modest operating loss, the amount of which will be released on August 8," the company said.

Consistent with comments Brian H. Hadfield, the company's chief executive, made to IGamingNews earlier this month, Crypto said it is working to add liquidity to its poker room.

Mr. Hadfield said then that the company had revised the total number of licensees it expected to serve at yearend, from between 18 and 20 to between 22 and 24.

Analysts, however, continue to maintain that the loss of William Hill as a licensee would be significant.

"We . . . continue to believe that the company is at risk of losing William Hill as a licensing partner (est 20-25% of rev) if it does not meaningfully improve its poker liquidity in the next couple of months," Todd Eilers, an analyst with Roth Capital Partners in California, wrote in a research note Thursday.

The company said in Thursday's statement that its investments in Asia are beginning to earn revenue. Mr. Hadfield has projected that Asia will account for 13 percent of total revenue by the end of the 2009 fiscal year.

Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.