Operating profit drops at major online Chinese lottery firm

The Chinese online sports lottery operator 500.com has warned that ticket sales may decline by as much as 3.3 percent this quarter after posting a 44 percent y-o-y decline in operating profits and noting that costs have doubled.

The Shenzhen-based company’s stock pitched sharply down 6.1 percent to $18.01 following the warning, made necessary by falling numbers in a heavily competitive market.

The Bloomberg business news agency reports that competition is increasing among China’s online lottery sites as bigger Internet companies from Tencent Holdings Ltd. to web portal operators NetEase Inc. and Sina Corp. seek to expand their market share.
500.com’s fourth-quarter operating income plunged from the previous year as expenses more than
doubled. The company said lottery purchase amounts may decline as much as 3.3 percent in January-March from the fourth quarter.

Independent market analysts say that 500.com’s sales are not growing as fast as the market, and that the company has lost market share to competitors like Alibaba’s lottery site, while NetEase is getting more aggressive.

Management at 500.com said in a statement that total lottery purchases may be between 1.7 billion yuan ($272 million) and 1.8 billion yuan this quarter, which would represent a 3.3 percent decline to a 2.4 percent increase sequentially.

While active users increased 10 percent to almost 1 million last quarter, the figure compared with a 19 percent increase in China’s lottery ticket sales in December.

Market consolidation is also said to be gathering pace, with Tencent, China’s second-biggest Internet company, revealing in October that it was seeking to buy 7.5 percent of lottery technology provider China LotSynergy Holdings Ltd. for about $50 million (see previous report).

Bloomberg reports that a unit of Huiyin Household Appliances Holdings Co Ltd. in July signed a three-year deal to sell sports lottery tickets in Jiangsu province.

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