Catena blames regulatory pressure for missed Q1 targets
Catena Media has cited the impact of regulations on its operator partners as the main reason it failed to hit revenue targets for the first quarter of 2019, while rising costs also hit the affiliate giant's profits for the period.
Revenue for the three months through to March 31, 2019, amounted to €26.1m (£22.4m/$29.1m), an increase of 9% on €23.9m last year but below original forecasts.
Search revenue was responsible for €21.7m of this total, up from €20.4m in Q1 of 2018, while subscription activity contributed €900,000 to overall revenue, compared to zero last year. This comes despite a decline in new depositing customers – down 7% year-on-year to 124,007.
Catena also noted that 78% of total revenue generated during the quarter came from locally regulated or taxed markets.
However, this revenue increase was accompanied by a rise in operating costs: up from €15.3m to €18.4m. Personnel costs jumped from €4.1m to €5.6m, while other operating costs were also up from €4.1m to €5.9m.
Catena put this increased spending primarily down to sales and marketing, due to ongoing investment in the US market and the financial services segment. The affiliate giant said that these strategic investments will continue to strengthen its margins moving forward.
Despite this higher spend, Catena was able to post an operating profit of €7.8m for the quarter, but this was down on €8.6m in the same period last year. Profit before tax also fell from €5.1m to €2.0m, while profit attributable to the equity holders of the parent company fell from €4.7m to €1.9m.
However, earnings before interest, tax, depreciation and amortisation increased by 8% year-on-year to €11.2m.
Catena CEO Per Hellberg acknowledged that regulations impacted operators negatively during the quarter, which in turn meant the affiliate giant came in below its revenue expectations. However, he also said Catena is continuing with its long-term strategic plan and foresees this having a positive effect from Q2.
“Everything we are doing is now converging in the right direction,” he said. “We are continuing our long-term transformation, based on the strategies of organic growth, fewer but larger brands and increased cost control.
“We are agilely adapting to changing conditions and expect to see positive developments from the second quarter onwards.”
Hellberg named Sweden as a problematic region in Q1, with revenue from many operators down “dramatically” as a result of the new laws that came into effect earlier this year. However, he also said that this will likely benefit Catena in the long term.
“History has taught us that that new regulations tend to initially dampen the markets somewhat before turning upwards again,” he said. “New regulation in Sweden further solidified this theory.
“Revenue of many operators dropped dramatically in Sweden. For the long term we expect this will prove beneficial for us. Since operators will need even more players, there should be even higher demand for our services.
“Additionally, with Swedish legislators considering restricting marketing channels for online gambling, our offering will grow even stronger.”
Hellberg also noted growth prospects in the US and that the talk of new states regulating has now turned to action. Although forecasts for the market are not yet in, he said there is potential to double US revenue in the second half of 2019.
“Our state-wide brands, such as playpennysylvania.com, are already top-ranked for what we believe are relevant searches and relevant content for consumers and local operators,” he said.
“National brands such as PlayUSA.com, BonusSeeker.com, legalsportsreport.com and thelines.com, all have numerous pages dedicated to Pennsylvania. This is a strategy we are well prepared to replicate.”