Youbet.com Guidance & Buyback Driving Earnings (UBET)

Youbet.com (UBET-NASDAQ) just gave its annual guidance along with its Q4 earnings.  It posted -$0.03 EPS non-GAAP EPS and earnings were -$0.14 EPS after all items and its Revenues rose 41% to $9.2 million for the quarter.  Estimates were -$0.06, but it is hard to know if this is comparable.  The company also issued 2007 EPS Guidance of $0.15 to $0.17 (based on 44 million shares; with Street estimates at $0.17 EPS) and its board authorized a $10 million share repurchase program (not to exceed 2 million shares over 24 months, and has to get its credit facility facility amended to allow this).  Total projected handle is expected to grow between 12% and 14% over 2006 levels.

Be advised that some of the estimates are higher than this, but here is the forward mutiple on this "IF you trust the company": at $0.15 for 2007, it has a forward P/E; at $0.16 the forward P/E is 17.8; at $0.17 its forward P/E is 16.75.  Why do I say "If you trust the company"?  Trusting anything to do with online gambling has been a challenge for any skeptics in the markets.  UBET is still up over the last 5-years, but this was above $4.00 for the first half of 2006 and traded north of $6.00 during points in 2004 and 2005.  Also, its year-low is $2.32.  None of the issues may be the fault of the company, but non-fault doesn’t mean that it isn’t their problem.  Investors are scared to own anything with a dot.com and "gambling" because the US government has decided to crack down hard on online gambling.  Even with this one being deemed "safe," everyone shot first and asked questions later.  UBET’s short interest actually declined from January’s 402,883 to 364,209 in February.

Adjusted earnings per share (EPS) for the quarter ended December 31,2006 was ($0.03), which excludes approximately $3.9 million innon-recurring expenses, consisting of a $1.1 million arbitrationpayment to TVG, $0.4 million for TVG related legal fees, $0.9 millionfor the settlement of certain local tax matters, and other charges ofapproximately $1.5 million.  It did lose money for the year but isforecasting gains again in 2007.  Net cash provided by operatingactivities increased 58% to $9.2 million for the twelve-month periodended December 31, 2006.

Here is the rest of the description: Youbet.com is a diversifiedprovider of technology and pari-mutuel horse racing content forconsumers through Internet and telephone platforms and is a leadingsupplier of totalizator systems, terminals and other pari-mutuelwagering services and systems to the pari-mutuel industry through itsUnited Tote subsidiary. Youbet.com’s International Racing Groupsubsidiary is the only pari-mutuel rebate provider to be licensed by aU.S. racing regulatory jurisdiction.  Their website offers members theability to watch and, in most states, wager on the widest variety ofhorse racing content available worldwide. Through this platform, Youbetoffers members commingled track pools, live audio/video,up-to-the-minute track information, real-time wagering information,phone wagering, race replays, simultaneous multi-race viewing andvalue-added handicapping products. Youbet.com’s Players Trust(SM)revolutionized advanced deposit wagering by placing player deposits inthe custody of a major U.S. financial institution.

You never know how these stocks will act for sure, but the chat roominvestors will be talking up this buyback and the forward earnings P/Emultiple of under 20 more likely than not.  UBET has a $100 millionmarket cap and the initial trade was up 1% after-hours to $2.87 afterfalling 3.7% to $2.84 in regular trading.  Other stocks tied to onlinegambling (non horse and pari-mutuel) are Cryptologic (CRYP), Gigamedia(GIGM), and American Wagering (BETM).

Jon C. Ogg
March 13, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.