European regulation continues to harm Net Gaming in Q3

15 November 2019

Online gaming affiliate business Net Gaming Europe has put a year-on-year drop in revenue, earnings and profit in the third quarter down to ongoing struggles related to new regulations in a number of European markets.

Revenue for the three months to 30 September came in at €3.5m (£3.0m/$3.9m), down 24% from €4.9m in the corresponding period last year.

Aside from struggles with new regulation in Europe, Net Gaming said this decline was partly down to an accelerated transition from cost per acquisition (CPA) to a revenue share model. CPA now accounts for 39% of revenue, down from 70% in Q3 of last year, while revenue share saw its contribution double from 30% to 60%.

Net Gaming also noted a 14% year-on-year dip in new depositing customers (NDCs), due to the challenges that operators faced in connection with regulation in Europe and increasing competition in the American market.

Europe was again the primary source of revenue for Net Gaming, accounting for 70% of all revenue for the quarter, despite the business experiencing issues as a result of new regulations in certain markets.

Revenue share from the company’s North American operations fell from 23% in Q3 of 218 to 14% this year, but Net Gaming saw growth for the rest of world, with revenue share's contribution climbing from 4% to 16%.

In terms of spending for the quarter, operating expenses were up slightly year-on-year, primarily due to higher spending on personnel, which increased 9.4% from €838,000 to €917,000. Net Gaming said this was driven by organisational development and recruitment of key personnel.

Other external costs also climbed from €773,000 to €832,000, mainly due to an increase in consultancy expenses related to the development of sites in North America and Europe.

Lower revenue and higher spending meant that operating profit slipped 47.0% from €3.1m to €1.6m, while earnings before interest, tax, depreciation and amortisation (EBITDA) also declined 41% year-on-year to €1.9m.

Profit before tax dipped 44.6% to €1.2m and, despite paying less tax (€74,000) compared to Q3 of last year (€159,000), profit after tax was down 44% to €1.1m. In addition, Net Gaming noted that profit from continuing operations fell from €2.0m to €1.1m.

The Q3 results mean that revenue for the first nine months of the year, through to the end of September, came in at €11.0m, down 20% on €13.8m at the same point in 2018.

EBITDA for the year-to-date fell 30% from €9.2m to €6.4m, while profit after tax was also down 31% from €6.3m to €4.3m.

“We will continue to feel the regulation effects in the short term, and we are obviously not at all satisfied with the figures we have achieved in recent quarters,” Net Gaming’s chief executive and president, Marcus Teilman, said.

“But looking on the bright side, we are convinced that we have an exciting journey ahead of us in an underlying growing market where we will be a leading player working at a fast pace and with a clear desire to take the lead.

“Our main focus is to grow in regulated markets with a high proportion of revenue share. We want to dig deeper in existing markets, strengthen our existing websites and invest even more in our strongest brands.”