CEO comments of the first quarter 2019
Building for takeoff in the second half of 2019
Everything we are doing is now converging in the right direction. We are continuing our long-term transformation, based on the strategies of organic growth, fewer but larger brands and increased cost control. During the first quarter, which also tend to start a bit slower due to seasonal effects, we saw that regulations impacted operators negatively, and us in turn, leading to a quarter where our revenues came in below our expectations. We are agilely adapting to changing conditions and expect to see positive developments from the second quarter onwards.
REBOUNDING FROM REGULATORY EFFECTS: SWEDEN
History has taught us that that new regulations tend to initially dampen the markets somewhat before turning upwards again. The new regulation in Sweden further solidified this theory. The regulator introduced new restrictions on operators, which in turn created a new player behaviour, which typically take some time for players to get used to. However it was difficult to foresee the impact this would have, especially on coveted high-spenders. Revenue of many operators dropped dramatically in Sweden. For the long term we expect this will prove beneficial for us. Since operators will need even more players, there should be even higher demand for our services. Additionally, with Swedish legislators considering restricting marketing channels for online gambling, our offering will grow even stronger.
HISTORIC LOW VOLATILITY IN THE FINANCE SECTOR
Last year we reported on circumstances that slowed our financial service segment. Many of those have been put right, but the first quarter provided historic low volatility on heavily traded instruments, which in turn caused operators to heavily reduce their Q1 estimates. This caused another bump in the road for us, but we are on top of the game and continue to execute on our strategy. We have taken significant investments to build a solid infrastructure, which hurts short-term profitability in the financial services segment, but we are now ready to scale up with improved margins.
CONTINUED FOCUS ON EXISTING PRODUCTS
Our existing products are becoming more and more efficient. The core operational focus during the first quarter was to continue the transition from onboarding acquisitions to organic growth, in order to turn certain declining and non-growing Casino products into long-term growth. We have been able to reorganise and transfer personnel to support this direction.
We are continuing to improve our core products. Our top casino brand, AskGamblers has effectively scaled up via a major technical makeover, now enabling us to launch the product into any market globally. We also launched NewCasinos in Germany in April.
POSITIVE OUTLOOK FROM THE US, AS MORE STATES REGULATE GAMBLING THIS YEAR
We are happy with what we have achieved in the US market during the first quarter. New operators are starting up, revenues are increasing as forecast and we are making good margins. The talk of new states regulating has now turned to action. The forecasts are not yet in, but the potential is there to double our US revenues in the second half of 2019. On 17 April, the Gaming Control Board of the state of Pennsylvania affirmed that mobile sports betting is expected to launch by May 2019, and the first online casinos will launch on 15 July. With several large land-based sportsbook operators up and running, there should be plenty of mobile sports betting options for Pennsylvania’s bettors at the time of launch. And Catena is very well positioned, with multiple operators already aligned for this launch. Our statewide brands, such as playpennysylvania.com, are already top-ranked for what we believe are relevant searches and relevant content for consumers and local operators. Our national brands, such as PlayUSA.com, BonusSeeker.com, legalsportsreport.com and thelines.com, all have numerous pages dedicated to Pennsylvania. This is a strategy we are well prepared to replicate.
The final leg of our strategy is clear; if we increase cost control we will improve our incremental margins when the revenue accelerates. In the first quarter we turned our cost development trend around, compared to the fourth quarter, to increase cost efficiency. We will continue to reallocate resources, allowing for geographical growth where we introduce new products and expand our major brands into new markets. The specialists we hired to increase traffic have increased revenue without increasing costs going forward. With several indicators pointing in the right direction, we are very well positioned for the future.