Net Gaming sees revenue decline continue into Q1

20 May 2020

Affiliate marketing business Net Gaming Europe has reported a 21.3% year-on-year decline in first quarter revenue, though new chief executive Robert Andersson claims that a refocused business has sufficient untapped potential to grow from Q2 onwards.

Revenue for the three months ended 31 March 2020 fell to €3.2m (£2.9m/$3.5m), with Net Gaming saying that it continued to suffer as a result of stricter regulations being implemented across its core European markets.

This was further exacerbated by a continuing transition from cost per acquisition deals to revenue share agreements with operator partners. Revenue share now accounts for 59% of the quarterly total, compared to 40% in Q1 2019. While this shift has had an adverse effect on revenue in the short-term, the business claimed it would strengthen growth and stability in the long term.

While Net Gaming did not provide exact figure for new depositing customer (NDC) numbers, it said they “followed the same trend as revenue”, declining 16% year-on-year.

Looking at revenue split by product vertical, casino provided the lion’s share, though its contribution fell 33.6% to €2.3m. This was partially offset by growth in poker and sports betting, albeit from small bases.

Poker revenue was up 12.4% to €588,000, while sports betting added a further €263,000, compared to a €4,000 contribution in the prior year.  Net Gaming generated a further €49,000 from other sources, down 37.2%.

Looking at the geographic split of revenue, Europe contributed 75% of the quarterly total, while the contribution from the rest of the world rose to 15%. North America, on the other hand, declined to 10%, due to intense competition in regulated states.

Targeting US growth, Net Gaming has relaunched its site, which now features separate sports betting and casino sections, and rolled out a social gaming product at the end of the quarter.

Commenting on the Q1 performance newly-installed CEO Andersson (pictured) said the company was “full of untapped talent” in an environment where “organisation and workflows have not been optimally designed and to some extent have had the wrong focus”.

“What is positive about this is that we have worked together as a team to quickly identify the ‘low-hanging fruits’ and the change work is now progressing at a rapid pace,” he said. “The plan ahead is clear and I am convinced that we have a bright future.

"It is now important to focus on operational efficiency while building a strong organisation for the future.”

Turning to costs, operating expenses grew marginally year-over-year, with a decline in personnel costs offset by a provision for a €50,000 credit loss and consultancy expenses for the development of sites in Europe and the US.

This resulted in earnings before interest, tax, deprecation and amortisation (EBITDA) falling 31.8% to €1.7m. After depreciation and amortisation, operating profit was down 32.8% at €1.6m.

However, Net Gaming then made a €1.3m gain from financial items, aided by currency conversions of loan financing, arranged in Swedish Krona, and cash proceeds.

This resulted in a net profit after tax of €2.8m, up 42.1% year-on-year.

“As we leave the first quarter, we can look ahead at what is interesting and where the focus should be,” Andersson said.

"First and foremost, we will have to drive change in order to drive growth and profitability. It feels like the whole company is part of this and understands the importance of changing the way of thinking and working, ensuring our customers and users come first, which is what creates our business.

He said the business had changed the terms of its outstanding bond, extending the due date by two years to September 2022, and focus now shifted to securing refinancing. This would allow the business to focus on profitable organic growth, reducing its net debt to EBITDA ratio and building shareholder value.

“As far as this industry is concerned, Net Gaming is an ‘old’ company that is finding its way back to its entrepreneurial spirit and speed – the desire and understanding are there!”

We now start to write an important new chapter in the company’s history,” Andersson added.