slips to loss despite revenue increase in Q3

20 November 2019

Affiliate marketing provider Group has reported a loss of €57,000 for the third quarter, despite experiencing a 2% year-on-year increase in revenue during the period.

Revenue for the three months through to 30 September 2019 totalled €4.2m, up slightly from €4.1m in the corresponding period last year. put this increase down to a rise in earned revenue (from SEO and direct navigation), which was up 16.4% from €3.5m in Q3 of 2018 to €4.1m this year. However, paid revenue (dervied from bought traffic) was down 81.4% to €110,000.

The provider noted that 77% of revenue in the third quarter was derived from locally regulated markets, an increase from 70% in the same period last year. In addition, new depositing customers were up 4% year-on-year to 18,411.

However, also reported a rise in operating costs for the quarter, with total spending up 33.5% from €2.9m to €3.8m. This rise was mainly the result of higher spending on personnel, with overall staffing costs more than doubleing from €981,000 to €2.1m, as the provider sought expansion in markets around the world.

Direct costs related to paid revenue were down from €559,000 to €141,000, while depreciation and amortisation expenses were cut by 30.1% to €130,000. Other operating expenses climbed 32.9% year-on-year to €1.3m.

Higher spending, coupled with minimal revenue growth, meant operating profit for the period slipped 72% from €1.2m in Q3 of 2018 to €337,000. posted a loss before tax of €79,000, a stark contrast to a profit of €479,000 in the same period last year. Although the provider benefitted from €22,000 in tax credit, its loss for the period stood at €57,000, compared to a profit of €438,000 in Q3 of 2018.

Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 66.2% from €1.4m to €470,000, while adjusted EBITDA excluding non-recurring costs slipped 59.9% to €610,000.

The Q3 results meant that revenue for the first nine months of 2019 amounted to €13.8m, which was 22% ahead of €11.3m at the same point in 2018.

However, operating profit was down 10.0% to €2.7m, while profit before tax fell 80.3% to €1.2m. Profit after tax also dropped 98.1$ from €5.9m to €1.1m. In addition, EBTIDA was down 10.0% to €3.2m, with adjusted EBITDA falling by 20.1% to €3.4m.

“Q3 is always a seasonally lighter quarter, with fewer sporting events,” chief executive Charles Gillespie said. “This, together with the continuing market challenges (due to tax and regulatory changes) in the UK and Swedish markets resulted in a slower overall growth rate for the group in the third quarter.

“In addition, following a review of the PPC media buying strategy, the group spent at a much reduced rate in the quarter, in this area. When looking at the group’s core business of earned revenue (SEO and direct navigation), year-on-year growth across all markets was 16%.

“Earned revenue performance in the UK market remained steady year on year, despite substantial headwinds in the market. However, in our growth markets, including the US, KPI data continued to show very strong growth trends, and we remain extremely positive for future development in these markets.”

Gillespie also noted the recent $15.5m investment by growth equity investment firm Edison Partners, saying that will use the funds to enhance its marketing services in the expanding US online gambling sector.

“The group continues to be very excited about the US opportunity in the coming years,” he said. “During the third quarter the Group started conducting business in Pennsylvania and West Virginia in addition to New Jersey.

“The group is currently pursuing licensure in Illinois, Indiana, Tennessee and Iowa and have seen recent positive legislative developments towards viable online markets in Colorado and Michigan.”