FortuNet (NASDAQ: FNET) makes electronic bingo game machines. The company is waiting for approval from Nevada gaming authorities for a new line of wireless gaming platforms, on which both bingo and more traditional casino games will be played. If approved, the new machines will diversify the company's product line, and customers will be able to do business with FortuNet for both electronic bingo game machines and wireless casino games.
FortuNet's 2007 revenue was $16.49 million, showing no growth from its 2006 figure of $16.46 million. The stagnancy can be attributed to the lack of consumer spending that caused the entire casino industry to struggle in fiscal 2007. Slow consumer spending resulted from a strain on disposable income due to trends such as rising oil prices and a struggling U.S. housing market. This limited growth in the casino industry, which FNET depends upon for its revenues.
FortuNet designs and manufactures electronic gaming platforms and related management systems. The company does not separate its revenue into separate segments in its 10-K report, but offers a wide range of different products:
|General and Administrative||4.62||6.46||3.55||4.04||3.77|
|Sales and Marketing||4.93||5.30||4.38||3.93||3.94|
|Research and Development||0.53||0.65||0.93||0.37||0.48|
|Total Operating Expenses||10.09||12.41||8.86||8.34||8.19|
FortuNet found itself in a slight slump in 2007, with its revenue increasing by only $.03 million from its 2006 numbers. This stagnancy can be attributed to a number of factors, including decreasing disposable income, the struggling casino industry, and an inability to expand on its already limited list of markets (98% of business domestically). However, FortuNet expects its business to recover in 2008 onward, as its wireless traditional casino game platforms become enabled by Nevada gambling authorities.
Furthermore, FortuNet's 2006 operating income was about half the value of its other years' because its operating expenses were unusually high that year. In fact, the total operating expenses were 18.7% lower in 2007 than in 2006. In 2006, operating expenses were higher in all three of FortuNet's expense segments: General and Administrative, Sales and Marketing, and Research and Development. These skewed numbers can primarily be explained by the company's large emphasis on researching new technology for its wireless player terminals and the company's transition from a private to a public company in that year.
FortuNet can only operate in regions that have legalized electronic bingo, which faces far stricter government regulations than many other forms of gambling, especially paper bingo. As of 2007, 27 of the 50 states in the United States permit electronic bingo, compared to 48 who permit paper bingo. The number of markets who legalize electronic bingo has grown steadily in the decade preceding 2007, as all tribal jurisdictions and United States Armed Forces bases permit it, along with the aforementioned 27 states and a growing number of foreign jurisdictions. As of 2007, FortuNet's primary U.S. markets are Nevada, Texas, and Washington state, all of which have favorable gambling regulations. However, the electronic bingo market continues to have problems gaining acceptance in certain markets, such as Colorado and Alabama, which deprives FortuNet of some of its business. Furthermore, the new Nevada regulations permitting FortuNet to release its new line of traditional electronic casino games is expected to increase its revenue as well.
In 2008, domestic disposable income suffered from an overall struggling economy. This contributed to shaky consumer confidence, which has sent the Applied Analysis Gaming Index, which includes casino operators and gaming machine manufacturers, down by 15.7 percent in January 2008. FortuNet was one such gaming machine manufacturer that suffered, as this trend helped force the company into its 2007 economic slump.
Although FortuNet's new electronic traditional casino games figure to expand its clientele, it obtained 34% of its 2007 revenue from sales to charitable organizations in Texas. Furthermore, even though FortuNet is expanding its international clientele, it obtained 98% of its revenue domestically every year from 2005-2007, with most of its business coming from Texas, Nevada, and Washington state. If there is a change in government regulations in any of these states, FortuNet's business will suffer and there will be substantial losses in revenue.
As of fiscal 2007, customer preferences have begun to shift away from traditional table games and towards electronic casino games. In 2008, casinos nationwide continued to follow this trend, implementing high-tech game systems, wireless customer-service features, and other technologically advanced services. The shifting preference towards electronic games in casinos, racinos, and bingo halls benefits FortuNet because its entire product line is made up of electronic bingo games. Furthermore, as of 2008, FortuNet is planning to develop a line of more traditional electronic casino games, such as video poker and slot machines, both of which will also benefit from this trend. Nevertheless, FortuNet's revenue growth was flat from 2006 to 2007 because of factors such as a struggling casino industry.
As an electronic bingo game manufacturer, FortuNet primarily competes with other electronic bingo game makers. However, FortuNet also heavily competes with manufacturers of other electronic casino games for valuable floorspace in casinos. Its competitors include:
|Company||2007 Revenue ($ in millions)||2007 Operating Income ($ in millions)||2007 Operating Margin|
|International Game Technology||2,621||800||30.53%|