XLMedia forecasts revenue decline in first half

23 July 2020

Affiliate marketing services provider XLMedia has said it expects to post a year-on-year drop in revenue for the first half of 2020, primarily due to Google de-ranking a number of its websites and also the impact of the novel coronavirus (Covid-19) pandemic. 

XLMedia forecast that revenue for the six months to 30 June would amount to approximately $27.5m (£21.6m/€23.8m), which would represent a drop of 35.3% from $42.5m in the same period last year.

Trading in Q1 was stronger than the second quarter, with revenue of $15.6m, due to a normal period of trading before the de-ranking in late January and the impact of Covid-19 not being felt until the middle of March.

Analysing the forecasts, XLMedia referred to the impact of Google changing the rankings for some of its sites in January of this year. At the time, XLMedia said the move led to a significant decrease in traffic that would hurt its revenue, with 23 of the impacted sites premium revenue generating assets. 

XLMedia has now revealed that monthly revenue is currently running around $2m lower than before the de-ranking, with the vast majority of this dropping through to the bottom line.

“The company has been, and will remain, focused on re-ranking these sites,” XLMedia said. “For the last six months, the company has been raising the quality of the content on the sites to make it more relevant and engaging.

“This included user-generated content, enhancing the offerings for a more targeted audience, assisted by data science, and migrating to an outsourced platform, which enables it to benefit from the accelerated innovation provided by an open-source community. 

“The managed re-ranking process will begin in August, when the first sites are resubmitted to Google.”

According to XLMedia, if a website were to have the manual penalty removed, it would take around six months for it to deliver 50% of the original revenue level, and up to a further 12 months to return to the level before the de-ranking.

In terms of Covid-19, XLMedia’s global workforce has been working remotely since March 2020, with some staff only recently returning to the workplace. The provider said it has been able to “seamlessly” implement remote and flexible working measures, with no impact on short-term productivity.

XLMedia said the impact of the pandemic was felt the most within its sports and personal finance assets, mainly due to the shut down of sports events and lower levels of activity in credit card issuance and investments.

Though XLMedia said the pandemic “generally benefitted” websites dedicated to casino and gaming, unlike some competitors that reported significant upside, it was unable to take full advantage due to the Google de-rankings.

An expected lower revenue performance is likely to impact other results for the first half, with earnings before interest, tax, depreciation and amortisation (EBTIDA) set to total around $3.5m. This would be 81.2% lower than $18.6m last year, though the 2019 figure was adjusted to exclude share-based payments.

However, despite these forecast declines, XLMedia said its balance sheet remains strong, with cash balances at the end of June expected to total $27.9m, down by 35.3% from $43.1m at the same point past year. The provider said that this was helped by a focus on cost management and the recently announced a reduction in employee numbers.

“While financial performance in the first six months was disappointing, XLMedia continues to make good progress on its transformation agenda and the delivery of its strategic priorities,” XLMedia said.

“Alongside this, we are prioritising removing the penalties imposed by Google on some of its premium sites. Combined with recent encouraging signs of increased activity in sports and personal finance, this would provide an increasing level of confidence in our ability to grow revenue and profit in 2021 and beyond.”

XLMedia also pointed to a number of other significant developments towards the end of the period, including announcing its intention to consider the disposal of some or all of its Finnish casino assets.

The provider said it has no requirement to sell assets, but any disposals could help rebalance its asset portfolio, and will now consider expressions of interest for the assets.

Also in June, XLMedia announced the appointment of Ken Dorward, formerly of Japanese e-commerce giant Rakuten, as its new president North America.

After the end of the half, completed a buyout of 101GreatGoals.com, a global football media publisher offering news content, live streaming of sport and betting tips for football fans.

In addition, the provider transitioned its corporation tax residence from Cyprus to the UK, in a move it said reflects the shift in senior management control, with the CEO, CFO and COO now based in the UK.

“XLMedia remains a strong business and a leader in its industry, with a clear strategic vision and the operational and financial strength to deliver it,” the provider said.