CEO comments for the second quarter 2019

Preparing for a strong second half

The second quarter is normally five to ten percent weaker than the first quarter. It’s a seasonal pattern that’s already part of our forecasting. However this year negatively affected by regulatory changes in the United Kingdom and France but we haven’t been biding our time – instead we have pulled out all the stops to gear up for a strong second half. Especially in three areas: completely rebuilding many of our sites; improving our business model; preparing expansion into new markets. Actions we believe will start building incremental revenue from the third quarter onwards.

WHAT BROUGHT REVENUE DOWN IN THE SECOND QUARTER
Second quarter revenue turned out below our expectations. There are four primary causes:

  • May and June are traditionally weak months for sports
  • New, rapidly implemented regulations in the UK
  • Regulatory impact in France
  • Large player winnings at casino, which had a negative impact on the revenue sharing
  • Still no improvements in Sweden

SEASONALITY IN THE SECOND QUARTER
The major football (soccer) leagues are inactive in the summer and sports betting naturally dips down. The effect was stronger this year, as the World Cup for men’s football (soccer) took place last year. At the same time casino volumes decline, as people gamble less during the holiday season. It all starts up again in August: The Premiere League in England, and leagues in Italy, German and Spain as well as the American NFL, which boosts sports betting in the US. As we went live in Pennsylvania, we’re now prepared for the impending traffic increase. 

NEW KNOW YOUR CUSTOMER REGULATIONS IN THE UK
When additional Know Your Customer (KYC) requirements were introduced in the UK at the beginning of May, all consumers – whether current or new – had to verify their identities, age and address with a passport or ID, before being able to play or deposit money. Due to a rather time-consuming and compli-cated KYC registration process, many players gave up before completing this step. This resulted in delayed deposits and gaming activities, and thus fewer NDCs (New Depositing Cus-tomers) and delayed revenues. However, improved registration processes by the operators as well as increasing numbers of available sport events have resulted in numbers coming up again in the start of the third quarter.

REGULATORY IMPACT IN FRANCE
We have implemented changes to our key product in France due to local authorities’ interpretation of the marketing legislation which has a certain impact on revenues until the changes has been implemented. The changes are estimated to be completed within the third quarter.

HIGH PLAYER PAYOFFS AT CASINO
It’s great when players win big, but many large payoffs at the same time affect our revenue sharing model. These can’t be predicted, of course, but they don’t occur often and only create temporary revenue downswings, which they unfortunately did during the quarter.

CATENA MEDIA WORKING HARD TO ADAPT TO MARKET CONDITIONS
We are probably the top affiliate when it comes to adapting  ourselves to a constantly changing market. Google made several large updates of its algorithms to focus on high-quality sites in the second quarter. This turned into a hard blow to the market and several of our competitors lost a lot in ranking on Google. Catena Media weathered the storm well, as we had put a huge amount of energy recently into rebuilding our sites from the ground up. This year we recruited nearly thirty new talents to work on improving products, while at the same time we reshaped our organisation towards more value-creating roles. The result is that we can improve our operational efficiency without significant increases in personnel costs.

NEW REVENUE STREAM FOR MATURE MARKETS
Many gaming markets, such as the UK and Sweden, are at the top of their life cycles and it is hard for operators in a saturated market to attract new players with specially targeted offers. This is beacuse local marketing laws sometimes prohibit operators from performing retention-related marketing activities such as reload bonuses. Hence, it’s more often the case that current players switch between operators. And they often make this choice based on our sites and the offers or betting tips we pro-vide. That’s why Catena Media has developed a new revenue stream, where we are paid to retain existing customers for the operator, to a further extent than before. We are working closely with operators to launch this functionality in the third quarter.

EXPANSION IN THE US AND GLOBALLY
Last year generated great expectations that the US will grow and produce considerable revenues. We are the largest in the US and Catena Media was recently crowned EGR North America “Affiliate of the Year” for the second year running. This is proof that we’re on the right track, even when facing tough competition. And things look very positive now that the NFL season is starting again, especially as we are now also live with both Sports and Casino affiliation in Pennsylvania. But our expansion has an even longer horizon and includes additional markets. Some examples: We are planning for AskGamblers.com to go live in Japanese, Spanish and Portuguese by the end of the third quarter; An English version of AskGamblers for India is also planned for the same period; and we view Latin America as a future market. We’ve test-launched Sports and Casino in a set of LATAM markets and we are, just as we did in the US, gathering market data so that we will be prepared when Latin America really starts to grow. Squawka will also be made available in Spanish during the third quarter to drive this growth. Finally, we have launched Sports in Japan.

OUTLOOK
Markets are increasingly regulated and undergoing changes, and this will continue. As we have often said, this is good for Catena Media in the long run; markets tend to consolidate, and key affiliates therefore grow larger but it takes time and we need to act to capture this growth. This year is teaching us that we need to continually improve existing products to do so. Furthermore, we need to add new markets to avoid regulatory changes having large impacts on our short-term results, as they did in the first and second quarter this year. Our product improvements and market expansions are programmed to start showing positive effects from the third quarter onwards, and even though we are early in the quarter, it looks positive.