CEO comments of the fourth quarter 2018
Short-term impact, long-term strategy
The process of transitioning from a distinct acquisition strategy to an increased focus on organic growth is progressing and the results have already been favourable, with clear indicators that we are on the right path. One of our largest products, Ask Gamblers, almost doubled its sales in 2018; the expansion of existing brands to
territories such as Japan is returning positive signals;
and the setting-up of operations in the US is progressing as planned and, at the same time, the company’s cost trend there has begun to decelerate. We experienced a short-term decline in the UK during the quarter that impacted earnings negatively, but that has now been corrected and turned in the right direction.
APPLYING BRAKE AND THROTTLE IN THE UK
Following major marketing investments during the World Cup, a major operator simply had no budget remaining for affiliate marketing in the UK in October. They are, however, up and running again. Another reason for the decline in sports betting in the UK during the fourth quarter was that two smaller operators closed their operations due to new regulations. The traffic we sent them has now begun to be redirected to other operators. Finally, we saw that the cost of PPC (Pay-Per-Click advertising) at Google during the quarter exceeded the maximum limit we had set to make acceptable margins on this traffic, Per continues. Accordingly, we chose to hold back on these investments, resulting in a negative impact on sales.
To reduce the impact of such situations in the future, our efforts continue to distribute our traffic to additional operators, reducing our dependence on individual operators. And
as the cost of PPC rises, this only means that digital marketing is growing more valuable in the long run and increasing the value of Catena Media’s traffic. As we envisage continued high PPC costs for sports betting in the UK, we redistribute these investments to other products instead, where we perceive greater profitability. In summary, we do not thus foresee any continued negative impact of the events from the fourth
quarter as corrections have been made for these.
CONTINUED FOCUS ON ORGANIC GROWTH
In the third quarter of 2018, Catena Media altered course and commenced the process of shifting its strategy from acquisition-intensive growth to organic growth.
In brief, you could say we want to achieve more with existing products. The acquisitions we have made needed to be better integrated into our business model and we needed to reorganize and prepare for the next growth phase. That process is now in full swing.
The organic growth strategy has three main components: Streamlining proprietary, established brands, growing geographically and adjusting the company’s cost structure.
We are already seeing positive effects from having fewer, better and larger brands rather than several smaller ones. Internally, we can allocate more time and resources to each brand, and that generates positive results. An excellent example of this is Ask Gamblers, which almost doubled its sales in 2018. Growing geographically means taking our well-known and established brands to additional markets or growing our businesses more where they are already established. This applies to all products. Planning is in full progress and, during the fourth quarter, we were able to discern a highly positive trend among recently-launched casino products in Japan, for example.
We have also begun efforts to reduce our cost trend in the company. We are now able to capitalise on our resources, our many successful recruitments in particular, and envisage increased profitability in 2019. We are also building a new vertical structure in the organization, with the aim of improving ROI (return on investment), while also making it easier to scale up and duplicate the structure into new verticals.
FEWER BUT LARGER ACQUISITIONS
However, focusing on organic growth does not mean that Catena Media will not make any acquisitions.
We will make acquisitions in 2019. They will, however, be fewer and more strategically critical to the company’s future growth. We will focus on those bringing growth with clear synergies or adding something new to the organization, like new technologies or skills.
US PROGRESSING AS PLANNED
We got off to a flying start in September 2018 following the re-regulation of sports betting in the US and are maintaining our momentum and dominant position. All sports betting revenues were derived from New Jersey, the only regulated state during the quarter. Just as forecasted, the monthly new customer recruitment was lower compared to September, although our overall revenues were higher, with the business having been in operation for three months rather than one. According to feedback from operators, our market shares remain the largest by far and the business produces margins above average in the company. The fourth quarter turned out precisely as planned.
We see an increasing number of operators preparing to launch, which should lead to increased demand for leads and continued high pricing for them. West Virginia is now the second state to come online after New Jersey, and Pennsylvania is also expected to launch in the spring 2019. Beyond that, though, the number of states seeking to regulate online gambling is increasing faster than anticipated. Various legal processes are, however, in progress to further regulate online gambling in various
ways. However, based on what we know today, we perceive nothing that changes our view of the growth potential the US offers us. In other words, the future remains bright.