It has been an erratic 2006 for online money transfer provider Neteller.
Amid an atmosphere of uncertainty engendered by increased regulatory activity, Neteller's interim report, released Sept. 11, offered some measure of recourse for the company and its investors after an eventful summer on the London Stock Exchange (LSE).
The company's revenue increased from $73.5 million to $118.9 million, up 62 percent, during the six-month period ending June 30. Gross profit increased to $58 million, up 43 percent, while net profit rose to $55.9 million, up 51 percent.
Neteller CEO Ron Martin said the company also experienced significant growth in other key areas, including customer base, merchants and transaction volumes.
Between January and June, Neteller shares oscillated between approximately 800p and 600p.
July arrived, and share prices dropped severely, down an estimated 600p to 292p, marking the company's 52-week low and a 51 percent decrease in value overall. Shares rebounded slightly in September, at one point climbing just above 400p.
As a point of comparison, shares of industry competitor FireOne exhibited a similar behavior pattern. After its shares topped out at 465p in mid-January, a 52-week high, they declined steadily until mid-July. Between July and August, shares plummeted from roughly 250p to 152p, a 52-week low.
Neteller and FireOne experienced their collective plunge immediately following the July 16 arrest of former BetonSports CEO David Carruthers.
Just as shares of both companies were slowly recovering in the wake of Carruthers’ arrest, the Sept. 6 arrest of former SportingBet non-executive chairman Peter Dicks induced another bout of market panic. The following day (Sept. 7), Neteller shares plunged 94p, while FireOne shares dropped 29p.
"I think any observer in this industry would've noticed that some Net gaming stocks, including Neteller, are falling significantly," said a source with Neteller. "My feeling is that it has been a direct response to increased regulatory noise in the United States, particularly the House of Representatives and now the Senate. As a result, I think the investors have a perception of a higher degree of regulatory risk."
The source added, "What I can say is that, as we've stated publicly, we have been monitoring developments. I think that, at this point, it's difficult to say with any certainty what the nature of the legislation is threatening, as it seems to be changing every day. We have reviewed what is currently being proposed. We've certainly made plans, which I can't share with you publicly, to address whatever we might view to be the possible outcome of the legislation. My understanding is that, even if the bill were to pass the Senate and be in the form in which it passed through the House, there is a period of servitude of 270 days that determines the exact nature of the regulation within the legislation. And at that point, who knows where it might end up."
Despite its recent setbacks, Neteller will hold to its "long, basic strategy of diversifying," planning around the company's central element, the e-wallet, the source said.
The company has made inroads regarding its existent e-wallet offerings in Continental Europe, while launching the first localized e-wallet service in China and extending the range of localized payment options already in place in Japan. Furthermore, the member sign-up process has been streamlined, from seven to two steps, using the company's real-time identity verification technology. Banking industry veteran David Gagie was also appointed as President of Financial Services to help right the ship.
"During the second half of 2006 and beyond, Neteller intends to develop and launch a series of financial services offerings that leverage the core e-wallet functionality," Martin said, "(But) we have continued to reduce our exposure to the North American market in line with management's expectations of the Company’s diversification plan."
"Whilst the gaming industry is subject to continuing regulatory uncertainty, Neteller is well placed to report significant progress during the second half of 2006," he added.