Net Gaming sees revenue and profit drop in ‘challenging’ 2019

21 February 2020

Net Gaming Europe has reported a year-on-year drop in revenue and profit in 2019, with chief executive Marcus Teilman saying the introduction of new local regulations across Europe had made for a challenging year for the online gaming affiliate business.

Revenue for the 12 months through to 31 December 2019 amounted to €14.3m (£12.0m/$15.4m), down 23.1% from €18.6m in the previous year.

Net Gaming said that this decline was primarily due to regulatory effects and an accelerated transition to revenue share, which had a negative impact on revenue.

“2019 has been incredibly challenging and characterised by regulatory effects in the European market,” Teilman said. “The major change in the business model to an increased proportion of revenue share has had a negative impact on our revenue in 2019.

“The main purpose of changing the business model is to build a more stable revenue base with a larger share of recurring revenue. We estimate that the increased proportion of revenue share reduced our revenue by €1.1m to €1.5m, which contributed to 25-35% of the revenue decline in 2019.”

Looking at costs, personnel expenses climbed 15.6% year-on-year to €3.7m, but other external costs were down 6.5% to €2.9m. Depreciation and amortisation costs rocketed by 112.0% from €343,000 to €727,000 for the year.

Such was the impact of the revenue decline that earnings before interest, tax, depreciation and amortisation (EBITDA) fell 32.8% to €8.4m, while operating profit was also down 37.7% from €12.2m to €7.6m.

Profit before tax slipped 36.9% to €5.3m, and after paying €380,000 in tax for the year, profit amounted to €4.9m, down 37.2% from €7.8m in 2018.

“In no way am I pleased with our earnings development, but I am firmly committed to returning to growth in all parts of the business during 2020,” Teilman said. “I believe that our EBITDA level bottomed out in 2019 and that it will increase in the coming year.

“During the year, we underwent an important change through the launch of our new technical platform and our establishment of a competent and more forward-looking organisation. In 2020, I look forward to being able to take advantage of all the interesting growth opportunities we have identified.”

In terms of Net Gaming’s performance in the fourth quarter, revenue fell 29.8% year-on-year to €3.3m, with the business putting this down to a wave of local regulation in Europe and a continuing transition from cost-per-acquisition to revenue share.

Operating costs were up slightly in the quarter, but, primarily as a result of the drop in revenue, EBITDA fell 42.4% to €1.9m, while operating profit slipped 41.9% to €1.8m.

Net Gaming also saw Q4 profit before tax fall 58.0%, with profit after tax coming in at €610,000, down 60.0% from €1.5m in the same period in 2018.

“The end of 2019 saw us stabilising our EBITDA in the fourth quarter, despite sequentially lower revenues,” Teilman said. “During Q4, we made a strategic decision to invest in fewer but stronger products, and as a result, we have appointed a number of brand managers in order to create clearer control, focus and responsibility for each individual site’s results.

“This initiative is at an early stage, but we are already seeing results and several sites are moving in the right direction, with increased traffic and conversion rates.”