Catena falls short of revenue projections again in Q2

19 August 2019

Affiliate giant Catena Media has seen revenue fail to meet internal targets for the second consecutive quarter, blaming tightening regulations in the UK and France, and a lack of improvement in the newly regulated Swedish market for its struggles during the period.

Revenue was down 9% year-on-year to €23.7m over the three months to 30 June, a period that Catena said was traditionally weaker for sports betting due the lack of any major sporting event. Q2 comparatives were especially tough as a result of the prior year's Fifa Men's World Cup, it added. 

However the quarterly performance was also hit by tightening regulations in the UK and France. In the UK, the introduction of more stringent Know Your Customer (KYC) rules required all customers to verify their identity. "Time-consuming and complicated" registration processes resulted in many failing to complete the verification, leading to delays in deposits, resulting in delayed revenue, and a decline in new depositing customers. For the quarter, new depositing customers across all brands and markets were down 18% to 223,998.

French regulator L'Autorité de régulation des jeux en ligne (ARJEL) then introduced new controls for premium (paid) tips, forcing Catena to change how customers sign up for this service and receive the tips, which also impacted revenue. 

Furthermore, Catena said it is yet to see any improvement in its Swedish operations since the introduction of new regulations in the country earlier this year. In Q1 chief executive Per Hellberg said operators' revenue had fallen "dramatically" following the introduction of new regulations. However, at the time, he added that this would prove beneficial to the business in the long-term as licensees relied more on affiliates for customers. This does not appear to have had an effect in Q2.

The business also suffered from high casino payouts to players in Q2, something that Catena noted affected revenue share deals.

Operating profit dipped from €10.0m to €6.1m and profit before tax from €6.2m to €7.1m. EBITDA for the three months to June 30 was down 22% to €9.4m, while adjusted EBITDA excluding non-recurring costs fell 21% to €9.5m. However Catena benefitted from a €3.0m gain from fair value changes of its assets, which meant that after financial expenses and taxes, net profit for the quarter was up 21% at €6.8m. 

Operating revenue for the six months through to June 30, 2019, meanwhile, amounted to €49.8m (£45.5m/$55.3m), down slightly from €50.0m in the corresponding period last year.

Search revenue remained Catena’s primary source of income, generating €41.9m in the first half, down from €42.7m last year. Paid revenue also slipped from €7.2m to €6.3m, but subscriptions revenue improved from €100,000 to €1.7m.

Revenue share arrangements comprised 45% of total revenue for the period, while 37% was derived from cost per acquisition, 14% from fixed fees and 4% from subscriptions. Catena also noted that approximately 78% of revenue was generated in locally regulated or taxed markets.

In terms of costs, operating expenses for the half were up from €31.4m last year to €36.0m primarily due to higher spending on staffing, sales and marketing, as Catena seeks growth in the US market and the financial services segment.

Personnel costs climbed from €8.8m to €11.2, while other operating expenses, which include sales and marketing costs, increased from €9.7m to €11.3m. Depreciation and amortisation expenses were also up from €3.9m to €6.7m, but direct costs were down slightly from €6.9m to €6.6m.

Higher spending and lower revenue meant operating profit for the period was down from €18.6m to €13.9m, while profit before tax also slipped from €11.3m to €9.0m.

Earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 8% year-on-year to €20.6m, while adjusted EBITDA excluding non-recurring costs slipped 16% to €20.7m. However, net cash generated from operating activities amounted increased from €19.0m to €19.5m.

In a brief statement, chief executive Per Hellberg said he was positive about the future performance of the business, citing the redevelopment of its websites in preparation for launching into new markets.

“We have completely rebuilt many of our sites; improved our business model; and prepared expansion into new markets,” he said.

Image: Max Pixel