London (Dow Jones)--Online gambling group PartyGaming PLC (PRTY.LN) Thursday said it was confident about its prospects after reporting a narrower-than-expected drop in full-year earnings from a fall in revenue, hit by declining poker operations and currency effects.

The Gibraltar-based company which operates Web sites including PartyPoker, PartyCasino and PartyBets delivered an upbeat outlook, saying it made a "solid start" to 2010 and is "confident" about its prospects even though the macroeconomic environment "remains uncertain".

Chief Executive Jim Ryan said "2009 has been a tough year, but I believe it has been a year when we have made significant progress. " He said PartyGaming's business model "continues to generate strong cashflow".

The results and outlook prompted the stock to rise, after early trading losses. At 1155 GMT, PartyGaming shares were up 1.5% at 308 pence, valuing the company at GBP1.26 billion. The stock has risen 46% in value over the past 12 months.

Stripping out exceptional items, earnings before interest, tax, depreciation and amortization from continuing operations --the key figure tracked by analysts and investors in the U.K.--fell to $135.0 million for the year ended Dec. 31, from $144.2 million a year ago. This came in higher than expectations of $133.3 million, the consensus figure from a company survey of 12 analysts.

Last month, the group said it expected the figure, known as 'clean ebitda', to be slightly ahead of the group forecasts, without disclosing figures. It also said then it expected double-digit sales growth this year.

Total net revenue fell to $444.7 million from $472.9 million last year, hurt by the continued weakness of sterling against the dollar and a fall in revenue at its poker division to $196.7 million from $274.0 million. The total group figure came below expectations of $445.1 million. The group said foreign exchange movements accounted for approximately half of the year-on-year decline in revenue.

Partygaming expects poker revenue to return to growth this year, following a turnaround at the end of 2009. In the fourth-quarter, the online gambling group reversed an 18-month trend of quarter-on-quarter revenue declines for the division by posting a 9% rise.

Partygaming's poker operations had been under pressure due to stiff competition from rivals, and the company reacted by increasing the bonuses paid and expanding its loyalty program to encourage customers onto the site and retain them.

On locations, Ryan said the group is "well placed" to take advantage of business opportunities when the lucrative U.S. gaming market opens up again and also to "exploit" changes in Europe, which has started to open up its regulatory regimes to new players.

The online gaming sector was hit by the passing of the Unlawful Internet Gambling Enforcement Act in October 2006 which effectively shut down the U.S. market. PartyGaming reached a non-prosecution agreement with U.S. authorities with associated costs of $105 million, of which $15 million was paid last year.

Ryan said: "We believe that at some point the U.S. will regulate online gaming and we want to be ready to take that opportunity. We have a number of organizations who are willing to do business with us. It is our ticket back."

In Europe, PartyGaming already has a growing presence in Italy. With France due to formalize regulations this year and both Denmark and Spain expected to pass laws next year, the company is confident of its future growth prospects.

On acquisitions, Ryan confirmed the group is pursuing deals on an ongoing basis and ready to "continue the momentum" built in 2009, with fourth-quarter revenue boosted by the acquisition of bingo and casino operator Cashcade Ltd and World Poker Tour.

"You will see more activity from us this year," he told reporters, saying talks with unnamed groups were at the "preliminary stage".

He declined to comment on rumors that the company is in discussions with a rival over a transformational deal. The company said in a statement that it is "determined to continue to play an active role in consolidating the industry".

Although the company has not specified the counterparty to any key talks, widespread speculation has pointed to Vienna-listed online gaming group Bwin Interactive Entertainment AG (BWIN.VI), one of Europe's largest sports book operators.

Analysts expect a wave of consolidation activity in the gaming sector in 2010. Daniel Stewart analyst James Hollins, keeping a buy rating on PartyGaming, says a potential merger with Bwin would be "immensely earnings enhancing and attractive for both sets of stockholders". KBC Peel Hunt analyst Nick Batram says the group has the "skill and desire" to consolidate, from a position of strength in its core business.

Numis Securities, raising its target price to 400 pence from 350 pence and keeping a buy rating, believes that a "game-changing" acquisition for the company is "more likely than not".

PartyGaming, quoted on the London Stock Exchange, was founded in 1997. It is the world's biggest listed online gaming group by market capitalization, derives most of its revenue from online poker and casino games and has a smaller sports book and bingo business.

This is a reprint from wsj.com  To view the original, click here.