Chinese and Swedish issues lead to 500.com revenue drop

12 November 2019

Lottery platform provider 500.com’s revenues fell 67.6% to RMB9.8m for the third quarter of 2019 as migration to a new website in Sweden and the cessation of sports information services in China had a major impact the business' balance sheet.

Of 500.com’s RMB9.8m in revenue, the vast majority (RMB9.3m) came from its online lottery betting and online casino in Europe, which are both delivered through The Multi Group (TMG), the company behind Multilotto, which was acquired in July 2017 for approximately €49.8m.

Revenue for the quarter was less than half of 2018’s total. The lottery provider said that the primary reason for this was the conversion of TMG’s licence in Sweden, which necessitated the migration to a new website. This change required players to re-register, which 500.com said led to a RMB14.2m decline in revenue from the offering.

This was followed by the decision, taken in March, to stop providing sports information services in China, which resulted in a further RMB 6.5m in lost revenue.

The service provider’s total operating expenses also fell significantly for the period, but not as quickly as revenue, declining 42.8% to RMB79.0m.

A large portion of this decline, totalling RMB27.5m, came from reduced compensation expenses from share options granted to the Company's employees. In addition, a change in marketing strategy accounted for RMB13.6m of the drop in cost, while lower consulting expenditure saved RMB5.6m and lower staff costs contributed RMB4.7m to the decline in expenses.

General and administrative expenses were the largest expense for the business, though declined 42.5% to RMB 42.9m. Costs of services fell 13.0% to RMB16.1m, while service development expenses fell 36.3% to RMB 11.1m.

Sales and marketing expenses experiences the most drastic decline, falling 66.2% to RMB9.0m.

Other operating income brought in RMB1.2m, down 76.2% from 2018. 500.com received RMB264,000 from government grants, down 35.3% year-on-year.

Impairment of goodwill from the company’s purchase of TMG contributed a further RMB30.9m loss, leading to a total operating loss from continuing operations of RMB98.4m, down 1.9% from 2018.

The company made RMB3.3m from interest income, down 14.7% and lost RMB699,000 of equity from investments in which it did not hold a controlling stake, down 84.0%, for a total pre-tax loss of RMB95.8m, down 4.3%.

The service provider received a RMB230,000 income tax benefit for an overall net loss of RMB 96.6m, down 3.4% from 2018.

Of this, a profit of RMB189,000 was attributable to noncontrolling interests, resulting in a net loss attributable to 500.com of RMB95.8m, down 0.7% from 2018.

Foreign currency exchange contributed RMB10.2m to the company’s earnings, but this was 66.5% less than in 2018, leading to a comprehensive loss of RMB85.6m, 31.7% more than in 2018.