How the Q3 numbers of egaming’s leading Nordic operators compare

The results season threw together three businesses often grouped together due to their Nordic identity, but facing very differing growth issues. As it has ever seemed to be, there was a tale of mixed fortunes this quarter for the long-standing giants of the Nordic sector, with Betsson and Kindred Group posting starkly differing results. At the same time we saw the seemingly unstoppable rise of LeoVegas in a region where the rules of the game are due to change and it’s not at all clear who the eventual winner is going to be.

For Kindred Group it was another quarter of growth that outpaced the wider market and another quarter of a relative lack of interest from the wider egaming world. There is a risk of the firm becoming a victim of its own success in terms of sector expectations, but in terms of scale its nine month revenues are only slightly behind Sky Betting & Gaming’s recently lauded FY 17 numbers at £513.4m. Rolling 12-month revenues of £666.2m and EBITDA of £145.4m are very much top tier. Even more impressively is it keeps growing at a solid double-digit rate with revenues up 36% in the quarter year-on-year to £193.6m.

In truth they are businesses with more differences than similarities heading into H2 2017 with the only commonality their historic Nordic revenue base. Betsson is a business seemingly struggling with the transition to regulated markets and mobile, while Kindred is now a truly top-tier online gambling operator. Its year-to-date revenues and current Q4 growth rates mean it’s likely to break £700m in revenues for the full year and it’s not growth at the expense of bottom line with £110.5m of EBITDA for the first nine months. Its revenues, while flattered a little by FX movements, were larger than Betsson and LeoVegas combined, although the latter is catching up at a pace.

The lion’s share

The period wasn’t as kind to Betsson, which reported 11% growth to SEK1.2bn (£108m) with underlying organic growth of just 2% in the period. Mobile casino showed positive growth trends but the key Nordic region was flat and there was decline in Turkey, while the acquisition of NetPlay TV aiming to give it more meaningful share in the UK appeared to bring with it its own set of problems. “Despite a good finish to the quarter, we are not satisfied with the overall growth in the quarter and Betsson has taken action to improve performance. Moreover, NetPlay, which Betsson acquired in April 2017, has not developed as well as planned and measures have been taken to get the business back on track,” interim CEO Pontus Lindwall said.

LeoVegas, however, once again shot the lights out in terms of revenue growth in the period, up 39% year-on-year to €55.2m and on course for breaking €200m for the full year despite having to pull out of Australia in the period. Growth was in double digits in every region, but strongest in Denmark and Italy following recent launches in both countries, the latter through the acquisition of the Winga brand. The “rest of Europe” region, which is Europe bar the UK and the Nordics, grew by 80.7% in the period thanks in a large part to a concerted marketing effort in Germany. It’s clear that the LeoVegas model translates well to a number of varied international markets. But that hasn’t stopped the firm looking to acquisitions to accelerate growth as it begins to reach into the top tier.

LeoVegas’ solid growth continues with revenues up 40% in Q3

The addition of UK-focused casino operator Royal Panda for a total of £120m including earn-outs after the end of the period was significant not just because it was the first major acquisition for the group, but also due to the strategic reasons behind it. Despite being an operator focused on using technology and brand to provide a point of differentiation there was no talk of synergy, but it was put forward purely as buying in quality revenues in a key market. “We are now taking the next step with our acquisition of Royal Panda, which is a great fit with our strategy to establish a strong presence in the UK – plus they have a great brand,” CEO Gustaf Hagman said.

Future targets

Where comparisons are most directly relevant though are in the Nordic markets with the region responsible for 40% of Kindred revenue, 48% of Betsson revenue and 60% of LeoVegas revenue in the period. LeoVegas unsurprisingly led the way with 127.3% growth in “other Nordics” due to its recent Danish launch, and a more modest 16.7% growth rate in Sweden. Kindred reported 13% constant currency growth and Betsson trailed with just 1% growth in the period. With three different reporting currencies between them, revenue growth rates are a little hard to unpick, but it’s clear that the region was challenging in the period.

“Despite a good finish in the quarter, we are not satisfied with the overall growth in the quarter and Betsson has taken action to improve performance” – Pontus Lindwall, Betsson

Sweden in particular is a hugely competitive market, markedly in casino where there is a seemingly never ending supply of new affiliate-led challenger brands and some relative newcomers that have rapidly gained scale. Kindred’s Unibet brand is arguably the leader in Sweden but has strengthened its general Nordics profile with smart acquisitions in the past and it would be no surprise to see any of the three groups looking to add bolt-ons over the next 12 months as we move towards regulation there.

One market all three have already thrown money at is the UK. Kindred acquired long-established but underperforming operator Stan James in mid-2015 and added casino operator 32Red in early 2017. Betsson spent aggressively to gain market share for its Betsafe brand in 2015/16 with limited success and acquired casino operator NetPlay TV in March 2017. LeoVegas meanwhile made its first big acquisition just after the end of the quarter buying Royal Panda in a deal worth up to £120m.

But as yet there has not proved to be any major breakthrough in the important UK market for any of the firms and they all appear to be in a period of readjustment of their UK strategies. It was notable neither Kindred nor Betsson mentioned the UK in any more than a passing reference in their Q3 reports and presentations.

Go West

Nonetheless the Western European region, which includes the UK, was the driver of growth at both Betsson and Kindred in the period. Betsson saw WE revenues rise 63% year-on-year to a total of SEK355.2m (£32.45m) while Kindred was up 60% in WE year-on-year to a total of £100.7m. Stripping out the contribution of 32Red and NetPlay TV from both groups, however, and the growth appears more modest and shows the importance of strategic acquisitions to maintain growth in the regulated markets not least those of the UK, Spain and Italy.

Kindred Group grew its Western European revenues by 84% in the period, with the UK a part of this, but Belgium, France and the Netherlands are all major components of its revenue mix. All three have proved to be fiercely protectionist in the past and with a willingness to make sudden and dramatic changes to the regulatory environment. Belgium in particular is something of an unpredictable nation in terms of its approach to gambling. Recent media speculation in the country that operators will only be able to offer one gambling product on each URL is the type of sudden lurch you can expect there.

But there is also some significant upside for Kindred in its dominant position in these regions as revenues continue to rise and its peer group continues to shy away from competing in the main. It’s arguable whether online regulation in the Netherlands is even a net positive for Kindred such is its strength in the region at the moment at a time when very few operators can even get a toehold in the country.

Talking Turkey

The international mix is different for Betsson, which derives 8% of revenues from Turkey. The snappily named Central & Eastern Europe and Central Asia region generated SEK223.2m (£20.4m) in the quarter, but revenues fell by 14% in the same period. Management put the decline down squarely to currency fluctuations and said the underlying business in Turkey was stable. But Turkey remains problematic in terms of its regulated profile and doubts around the strategy there is believed to be the main reason behind the departure of its CEO Ulrik Bengtsson in the period.

The regulatory profile of Betsson remains somewhat concerning with just 25.1% of revenues coming from “locally taxed” regions, which includes Germany, Denmark, Estonia, Georgia, Spain, Ireland, Italy, Latvia, Lithuania and the UK. In comparison Kindred is 41%, and while LeoVegas’ regulated revenues are only 25% of the business, it does appear to be growing quickly in those regulated markets it enters. Betsson said it expects regulated revenues to continue to grow as a share of the business. The introduction of the regulated market in the Netherlands, where it has previously invested into via acquisitions only to be shut out in the pre-regulatory period, will be a big shift for them as will the eventual regulation of the Swedish market. But arguably the lack of regulated revenues is not Betsson’s largest concern.

Betsson CEO Pontus Lindwall

Betsson’s sportsbook revenues in the quarter fell 8% year-on-year to SEK275.1m (£25.1m) with decline in all regions aside from Western Europe where the business grew from a very low base.

Despite investment in both marketing and platform and a relaunch of its mobile product, it remains starkly sub-scale in comparison to its peer group and sportsbook is just 23.3% of group revenues. Betsson noted in a presentation it is continuing to make improvements to the product, particularly on mobile and in terms of its live betting offering, and there are likely some reasonable gains it can make from simply correcting product gaps. But it has a veritable mountain to climb in terms of revenues.

Sportsbook revenues at Kindred were £85.7m in the period, up 28.5% year-on-year although FX movements flattered that growth rate to an extent. Growth was strongest in the Western European region, which was up 41% to £49.6m and much flatter in the Nordics where the absence of any major soccer tournament was more keenly felt. What was interesting, however, was the growth in live betting during the year with in-play rising from 48.4% of all betting revenue in Q3 2016 to 51.3% in Q3 2017. This can be directly correlated to Kindred’s strong mobile performance in the period with mobile at 71% of revenues compared to 57% at Betsson.

Where next?

The question now is where next for these three firms. For Betsson yet another period of rebuilding appears to be in order although with the focus more on operations and marketing than product this time. There are still, however, serious questions around its international profile and its ability to break into the key regulated and near regulated markets in a meaningful way. The former may require some short-term pain and the latter may well lead to another major acquisition, with a regulated or near-regulated market sportsbook seeming to be the missing part of the puzzle. But they are fairly short in supply right now.

LeoVegas meanwhile appears to be constantly in flux, testing and changing its marketing spend and approach, and refining its customer targeting and international mix. Marketing as a percentage of revenue was just north of 40% in the period underlining it is still in an aggressive growth period. But interestingly, active customers were down 12% year-on-year with new depositing customers up 30% as it tries to focus on a more profitable and sustainable customer cohort. The addition of Royal Panda, which also operates a number of smaller carousel brands, is a fascinating one with exactly how the operator looks to cross-sell between the two brands a real point of interest in the coming quarters.

Of equal interest is where the firm will focus its marketing spend in the coming months. LeoVegas’ international ambitions are broader than most of its peer group too and it may risk spreading itself too thinly as it looks to grow in the Nordics, regulated Europe, grey market Europe and further afield in grey markets in the rest of the world. Could more acquisitions be on the cards? Or could it become too attractive to some of the M&A hungry operators in the market to not make a play for? Neither option can be ruled out right now.

Meanwhile Kindred’s low UK profile and somewhat hefty trading multiple in its native Sweden mean it is a business frequently ignored by the analyst community but at this scale it really is hard to overlook. It’s also a business with a number of strengths, including its mobile portfolio, product mix and an international profile with some issues but many strengths. Its decision to keep tech development close at hand, but technically on a third-party basis, is more questionable but it’s proved itself time and again as adept at adding in strategic acquisitions that are also immediately revenue enhancing.

While it’s traditionally focused on small to mid-tier acquisitions it shouldn’t be dismissed as a potential player in larger scale M&A. There is the sense that, in many ways, Kindred is only just getting started.

Featured image credit: Ramberg/iStock