NetEnt ‘taking action’ as growth slows

13 July 2018

Recently-appointed NetEnt CEO Therese Hillman has insisted the developer is “taking action” after a slowdown in the UK contributed towards disappointing revenue growth in the second quarter.

In a trading update this (Friday) morning, NetEnt reported a 6% rise in revenue year-on-year to SEK437m (£39m/€44m/$51m) – a 0.8% decline in euro terms – while earnings before tax grew by a modest 1.2% to SEK149m. NetEnt's share price on the Nasdaq Stockholm was down around 17% this morning following the release of its Q2 results.

In a conference call, Hillman (pictured) said she “couldn’t be too confident” that the revenue outlook would improve significantly over the next two quarters.

“We are taking action where we are not doing enough at the moment,” she added. “What we do see is that the slowdown in the UK has made a difference and the UK is a challenging market.”

Hillman said that in spite of the emergence of new players in the UK, the company’s market share in the country remains at approximately 10%.

“I’m confident that the game portfolio will be better in the second half of the year and we also have a good line-up of new customers to launch in Q3 and Q4,” she said.

“We need to grow our live casino and have more growth initiatives to kick in.”

Hillman was appointed as the new permanent group chief executive in May. She had served as NetEnt’s chief financial officer since January 2017 before taking on the top job in an acting capacity following the removal of Per Eriksson in March – with the board stating that the performance of the group had “not been as it should”.

Strengthening the customer offering

Looking forward, Hillman said that NetEnt’s plan of action includes strengthening the customer offering, cutting lead times and freeing up resources for new commercial projects. The company is enjoying stronger growth in southern Europe than the UK and Nordics, where the markets are maturing and there is increased competition, she said.

However, she added that it is an “ambition” rather than an expectation that revenue growth will surpass cost growth this year.

“We continue to review our cost structure to improve scalability across the business and we have started to see a lower pace of cost growth,” she said.

Hillman added that the Fifa World Cup, which started in June, had made a positive impact on NetEnt’s performance after May had “really hurt” the company’s figures.

Increasingly dangerous

In a trading note, Regulus Partners said that NetEnt’s slowdown mirrors two macro trends that “will be difficult to overcome”.

The note stated: “First, NetEnt’s key Northern European markets are maturing, making growth harder to come by, especially for operators and suppliers with already large market shares and limited USPs.

“Second, the rapid growth in mobile-led businesses has also disaggregated the supply-chain from the comfortable (near) vertical integration of the early and middle phases of remote growth. The best operators seek the best content from a wide range of sources, reducing the value of incumbency in absolute terms and also increasing the growth risk of clients with legacy systems and slow response times.

“In our view, these two pressures have a number of suppliers and operators in an increasingly dangerous vice. It is easy to know that it is critical to be ‘more agile’, ‘more innovative’ and ‘more relevant’, as well as more efficient; but when shaped by a supply-chain environment that is changing very rapidly, it is a lot harder to do.”