An Online Crapshoot

Never mind that online gambling is not yet legal in the U.S. The prospect has fired up some pros who are positioning themselves for a big play in electronic wagers. Witness the stock of CryptoLogic (CRYP ), a leading licensor of online casino software, which has raced from 10 in early March to 27.70 on Aug. 1.

"CryptoLogic is betting that gamblers will roll the dice online," says Scott Preston, an analyst at Research Capital, who rates the stock a buy and sees it leaping to 40 in a year. CryptoLogic's premier software lets casinos extend their operations to the Internet. The online set-up has a secure, encrypted cash server for deposits and withdrawals from customers' accounts to facilitate Web transactions.

CryptoLogic's big jump was partly due to applications for licenses by MGM Mirage and Park Place Entertainment to operate online casinos in Britain's Isle of Man. In Nevada, a state Senate committee cleared a bill that could bring online gaming there in a couple of years. MGM Mirage owns the Bellagio and MGM Grand, while Park Place owns 30 resorts including Caesars Palace in Las Vegas. "All of these trademarks would translate well onto the Internet," says Peter Swan of Pacific Growth Equities.

Net gambling, analysts say, should grow from $1.5 billion in 2000 to $6 billion by 2003--a fraction of the $350 billion world gambling total. Overseas, online gambling is already clicking: CryptoLogic has provided software for Casino Sur in Argentina, and has 750,000 users of its gaming software in Europe, Asia, the Caribbean, and Australia. The big casinos will reap the bulk of the business, but CryptoLogic will also see quite a harvest, says Preston, who figures it will earn $1.33 a share in 2001 and $1.68 in 2002, up from 2000's $1.04.

By Gene G. Marcial

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