NETeller

Neteller Business reviews 2004 - 2005

THE LEGAL status of internet gambling in the US is cloudy, to say the least. It is explicitly outlawed in many states, others are trying to regulate and tax it, but the Federal government is taking a prohibitionist stance. And yet the numbers of Americans, in common with people across the world, who are punting on sports betting sites or playing internet poker has been growing exponentially.

The traditional banks won't touch their money, though, and NETeller has grown into a significant business (and a stock market hot property) as a result of this opportunity. It operates an e- wallet, ferrying money between the gambler and the betting website and taking on the task of verifying users' identities and checking for credit card fraud. An average of 1,800 people signed up to NETeller last year, and it made pounds 45m from its cut of transactions. Of that, pounds 25m was pre-tax profit, indicating just what a licence to print money this business is. We tipped the stock after its flotation last April at 197p and it had shot up to 640.5p yesterday.

NETeller shares have attracted the attention of short-sellers, inevitably, and it did get one black mark yesterday, having paid more tax than expected in the months before it moved its operations to the Isle of Man tax haven. This is small and historic when you consider that profit is expected to double this year, but nervous investors will want to make sure the company is keeping control of administrative costs.

The opportunities continue to outweigh these risks for investors with a bit of gambling money available. NETeller.com has just made an acquisition of a payments company in the Far East that will allow it to expand into gambling-mad China, where its expertise in cross- currency transactions puts it ahead of the local banks.