Profit up at Raketech despite revenue decline in 2019

19 February 2020

Online affiliate and content marketing provider Raketech has reported a year-on-year increase in profit for 2019, despite new regulations in the Swedish market pushing revenue down.

Total revenue at Raketech for the 12 months to 31 December 2019 amounted to €23.9m (£19.9m/$25.8m), down 6.5% from €25.6m in the previous year.

Raketech said despite an 8.8% increase in new depositing customers for the year – climbing to 108,365 – revenue was negatively impacted by a decline in player value in Sweden during the year.

Total operating expenses in 2019 jumped 23.6% year-on-year to €17.8m, with Raketech seeing costs climb across several areas of the business. Staff costs were the main outgoing, with employee benefit expenses up 7.4% to €5.2m, due in part to a €400,000 severance payment to former chief executive Michael Holmberg.

Direct costs related to fixed fees and commission revenue were up by 71.4% to €3.6m, which Raketech said was a result of increased investment on its product portfolio, as well as higher marketing spend.

Other expenses were up from €4.2m to €4.6m, while Raketech said depreciation and amortisation costs rocketed by 170.6% to €4.6m mainly due to its purchase of Casumba Media and costs related to the acquisition of CasinoFebe. However, Raketech was slightly helped by not having any expenses for its IPO, which last year set it back €1.5m.

Lower revenue and higher costs pushed operating profit down 45.5% to €6.1m. However, when taking into account $2.3m in other non-operating income, which related to party liability that was waived in Q1 of 2019, profit before tax was up 54.2% to €7.4m.

After paying €256,000 in tax during the year, profit after tax amounted to €7.2m, representing a year-on-year increase of 56.5%. However, Raketech did report a decline in adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), which fell 23.6% to €11.0m.

“Looking back at 2019 it can easily be described as an eventful and challenging time, not only for Raketech but also for the affiliation industry and the igaming sector as a whole,” Raketech chief executive Oskar Muhlbach said.

“The Swedish gaming market has been particularly tough which with Raketech’s heavy Swedish presence added to our challenge. On a positive note, 2019 was also a year where we made good progress in strengthening our product mix, expanding our geographical footprint as well as our operational capacity.

“This was achieved through strategic acquisitions, a series of key recruitments and relentless efforts within process improvements to ensure we are ready to grow and scale efficiently.”

In terms of Raketech’s performance in the fourth quarter, revenue was down by 23.3% to €5.8m, partially due to a 22.1% drop in new depositing customers for the period. Raketech last month had warned investors about its financial performance in Q4.

Operating expenses in the three months to 31 December 2019 climbed 57.9% to €6.0m, which, combined with lower revenue, pushed Raketech to an operating loss of €134,000, compared to a profit of €3.8m in the previous year.

Loss before tax in Q4 amounted to €360,000, down from a profit of €1.8m in the same quarter in 2018, while loss after tax stood at €342,000, in contrast to a profit of €1.7m in 2018.

“We experienced a slow start of the fourth quarter, which was both disappointing and somewhat surprising as it is normally seasonally strong,” Muhlbach said. “Especially since our product portfolio showed stable operational performance with increased new depositing customer intake of 5% compared to the previous quarter.

“Our response to the slow start was to launch a series of targeted paid media efforts, granular site audits, individually tailored operator campaigns, improvements to our top list algorithms and more. This, in combination with a slight general market upswing resulted in a confident finish landing the quarter as a whole just slightly lower than the previous quarter.”