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Good day and welcome to the ZEAL Network SE Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jonas Mattsson. Please go ahead, sir.
Good morning, and welcome. Thank you for your interest and for joining the call. I hope you can hear me loud and clear. I trust that all of you have access to the webcast link, which should have been distributed to you. But if not, it's also available on the ZEAL website in the Investor Relations section. Additionally, you will find a link for you that you can download this presentation. On Slide 2, you will find today's agenda, highlighting the main areas I will cover before giving you the opportunity to ask questions. We will start off with a summary of the first 9 months, followed by a financial update and our revised guidance before we finish up with the key takeaways.Let's start with the summary, and I will now hand over to our CEO, Helmut Becker, that will take you through Slide 4.
Thank you, Jonas, and good morning, everybody, also from my side. Let me summarize our first 3 quarters this year. Our billings are up 42%. But we are comparing apples with oranges still with this number. To interpret this number, you will have to consider a number of one-off effects. So the ZEAL 9 months number for 2020 includes Lotto24 and Tip24 billings. The ZEAL 9 months 2019 only includes Lotto24 from the second half of May onwards when we started to consolidate Lotto24.Second effect is that the Tip24 billings were influenced by the business model change, the loss of customers and products that we experienced in October 2019. So to give you a number that is more apples with apples, let us just look at Lotto24 and compare the full 9 months 2020 with the full 9 months of 2019. And there, we actually see a relatively similar growth number. So we see 38% billings growth for Lotto24.We have improved our gross margin also in comparison or in comparison with Lotto24 from last year by adding and selling more premium products. We plan to continue to grow our share of premium products. We can use that extra margin to either boost our short-term profitability or to acquire more customers and invest into our future.Again, in Q3, we managed to acquire a high number of new customers efficiently, even though the jackpot situation was worse than in Q1 and Q2. And based on the progress we made, we've again raised our guidance for 2020. We'll get back to that later in the presentation. Let me hand back to Jonas.
Thank you, Helmut. Let me now take you through the numbers in greater detail. So let's move to Slide 6. What do you see on this slide is a summary of our income statement. And I will explain part of this in more details also in the coming slides. Revenues at EUR 63.9 million indicates healthy first 9 months of this year, in which we have taken advantage of the positive market environment, but also the full inclusion of Lotto24. As explained in previous calls, if you compare with last year, the revenues are impacted by the business model change. And the lower revenues should not trade as anything worrying in our business, just a natural evolution on now operating a more sustainable business model, the brokerage business model. Some of you have also asked about comparison to Lotto24 stand-alone. So let me provide a bit of clarity even if they were not formally part of the ZEAL Group in the first 4.5 months of 2019. But it will nevertheless give an indication how the business has developed. So revenues for Lotto24 AG, the company, was approximately EUR 28 million in the first 9 months last year. This means that we have more than double the broker revenues to EUR 58 million, with the inclusion of the Tipp business. And if you could exclude the Tipp, meaning only selling the Lotto24 brand, the revenue would have been approximately EUR 41 million, a 49% increase.From my perspective, this is an amazing growth we have seen in the broker business, and makes me even more confident about this decision to change business model as we did last year as well as the great performance by the company.Let me now move on to costs. We've been able to reduce the cost by nearly EUR 14 million. It should also be noted that Lotto24 costs were not yet included up to the first 4.5 months of last year. So the cost savings would have been correspondingly higher compared to previous year.Having said this, it's clear that the synergy, as we are and were committed to deliver, are mostly already realized. On top of this, we also invested EUR 9.2 million more markets -- in marketing to take advantage of the positive marketing environment with relatively high jackpot throughout the year. The purpose is, of course, to acquire more customers, which I will come back to in a moment. And finally, an adjusted EBITDA of EUR 6.9 million. As expected and communicated to you, it's below previous year. But at that time, we did operate a different business model. I'm very satisfied with the result, especially considering the mark-to-marketing investment the company has undertaken this year. With a lower marketing investment, EBITDA would have been naturally much higher. But it indicates the strong first 9 months we have experienced while being able to absorb such a big marketing investment and still delivering a good profit. Just as a final note, the nonrecurring income, mainly related to the stamp due to reserve tax that we recently got impact from the U.K. tax authority. Let me now give you a bit more insight on some of the key performance indicators that you will find on Slide 7. Group billings. Group billings, which is showing the transaction volume we are handling has grown by 42% to EUR 472 million, which is truly amazing for ZEAL and, of course, driven by the inclusion of Lotto24, but also thanks to the successful customer acquisition we have seen this year.This indicator is of significant importance since our business is highly dependent on economies of scale, and we clearly have scale. Even if Lotto24 was not part of the ZEAL Group for the full 2019, let me still provide a bit clarity how the development would have looked like. If we look at Lotto24 stand-alone, it's billing amounted to EUR 241 million in the first 9 months of 2019. And in 2020, billings rose by 38% year-over-year, including Tipp, meaning what volume goes through the Lotto24 company, we've almost doubled that volume. Once again, this is important because price matters in this broker business. If you do the comparison, the same comparison for revenues, we have a 49% increase as I just mentioned.In terms of ZEAL gross margin for the Germany segment, we are in the first 3 quarters at 12.3%, thanks to strong sales of our premium products like Lottovate club and supported by the market launch of our social lottery, freiheit+ in March this year.This is giving us confidence that the margin can be further increased in the medium term. For a better comparison, we have also included, in gross margin, Lotto24 as a stand-alone company from last year, which were 11.4%. We're clearly making improvements here.On slide, we have highlighted net cash and new registered customers. Net cash is now at EUR 58 million, down 55% due to the payment we made to German tax authorities of EUR 54 million in January this year. And the payment, as you probably know, was made in order to earn interest and avoid penalty. We have also paid dividends of EUR 18 million to our shareholders, as I'm sure you're all aware of. So even if we are confident to ultimately win the case, we have indicated that the remaining VAT cash exposure is EUR 22 million. To summarize this part, we are optimizing the cash situation of the company to either gain a risk-free return or as close risk you can get on the excess cash or return to shareholders in line with our dividend policy.Let me now talk about acquisition. It has been a remarkably strong first 9 months in terms of acquisition, in fact, the best ever in the history of ZEAL. We can proudly report 787,000 new registered customers in Germany. And if we compare that with Lotto24 stand-alone for the same period last year, they acquired 287,000, which is a 274% increase year-on-year. So what we see is that the additional marketing investments are paying off, and our ambition to grow and being the market leader is on its way. All this sets us up for an interesting future when this customer continue using our services. As we have explained previously, the customer that ultimately sticks are very loyal for many, many years.On Slide 9, you will find further performance indicators. Cost per lead is reduced by 2% if you compare with Lotto24 from last year. This is thanks to more efficient marketing channels that the entire ZEAL Group now have active. But I also want to call out that target is not to reduce this to the lowest level possible, but to continue the best in marketing when we get a good payback time and healthy return on our investment.So a lower cost per lead is, of course, nice, but not -- but needs to be seen in a wider concept and not a target, per say. The average monthly active user for the first half -- for the first 9 months of this year is close to 1 million. The sharp increase that you can see on the slide is due to that Lotto24 was not part of the first 4.5 months. But also, thanks to the growing business we have had this year. From next year onwards, this number will be much easier to analyze since we would have better and fair comparison data. The last KPI on this slide is average billing per user is at healthy EUR 53.This is a decrease from last year, but please remember that we were operating a secondary lottery operation with a very different and wider product offering. So nothing to be worried about.Let's now talk about the guidance for the financial year, and you will find that on Slide 11. I'm very pleased to announce that we have raised our guidance again. And after the strong first 9 months, you will see the new guidance, which is billings in the range of EUR 610 million to EUR 630 million, revenues EUR 80 million to EUR 83 million, adjusted EBITDA in the range of EUR 8 million to EUR 10 million.And we expect the gross margin for our German segment, slightly above 12% where we are now. The CPL, cost per lead, is lower than previous year, which we are already tracking as we speak. And the new registered customers, we expect now to be around 900,000. Please note that if one would optimize for the short term, EBITDA could have, of course, been significantly higher without this additional marketing investment that we're doing. But the long-term profitability would then suffer by growing the businesses to keep in line with our strategy. This would also create the most shareholder value to all of you. Let me now hand back to Helmut, and he will take you through the key takeaways that you will find on Slide 13.
Thank you, Jonas. As you can see with our numbers, but also with our guidance for the year, we've had a strong first 9 months. The customer acquisition has been particularly strong. The integration of Lotto24 is on track, and we are delivering the synergies faster than we promised. The cost focus is still top of our minds. As a result of the good business development, we raised our guidance again. With this, I'd like to conclude our presentation, and we are now opening up for questions. And I hand over back to the operator.
[Operator Instructions] We will now take our first question from Marius Fuhrberg from Warburg Research.
I say first of all, if you look at marketing spending was up quite significantly, which makes perfect sense to gain more customers. But yes, in light of Q4, what should we think of it going forward? Also with regards to your EBITDA margin, would you kind of risk your margin in terms of -- or for the cost of more customers, so increase your marketing spend into Q4? Or would you rather limit it?And the second one, I guess, more important even is the new lease signed GlüNeuRStV act by the Chief of the German countries. What does this mean for you, especially with regard to Instant Win Games going forward? Do you -- or when would you consider offering those? And do you need a special license for this?And what potential could this bring, or what potential would you expect from this side for the next couple of years? And more generally speaking, I think this is set aside, do you need more additional licenses, which you have applied for? Or is this quite a straight-forward topic?
Yes. Thank you so much. I think I can cover the first question, and then I will hand over to Helmut for the question about the licenses and the GlüNeuRStV act. So the marketing spend, as you see, we have invested a huge amount this year, taking advantage of the high jackpot situation. As you may be aware of, when the jackpot is high, it is very economical to invest a lot in marketing.And you have seen a number of spikes in jackpots, especially in April, May time frame when the EuroJackpot was so high. That's where we took the advantage of the positive market and invested heavily. In a normal jackpot situation, we will go down more to a normal level, which is around EUR 1.5 million per month. So if you don't see any high spikes of jackpots in the coming 2 months, we will probably be more on that level, EUR 1 million to EUR 1.5 million per month. But it could scale up if we can take advantage. So we don't limit our marketing to specific numbers.We really take advantage when we see this opportunity in the market. Helmut, for the other questions, I hand back to you.
Yes. Thank you, Jonas. So to your question about the GlüNeuRStV act. So the new GlüNeuRStV act, which has now been decided, still has to be ratified by the states, but we don't foresee any issues there. So the new GlüNeuRStV act, and first of all, gives us stability, stability for the market environment and the business model that we run. But secondly, it opens up new opportunities for us. It actually makes marketing a little bit easier, but it also legalizes new forms of gambling. And I think you alluded to games in particular.And so that's a new market that is going to be legalized in Germany according to the new GlüNeuRStV act. So it's too early to say what we will do with this, but we're currently looking into these potential product extensions. And we know from the past, when we had gains on the Tipp24 side, that this is a good fit with our target group, mainstream lottery players. And that also in other markets, and games are typically part of the portfolio of a lottery provider. And that cross-sell and upsell works quite well. To your question, do we require a new license or additional license for that? The answer is yes.But that is still pretty straightforward. So the rules are clear. We would have to apply for a license, and we don't foresee any hurdles that not get a license if we wanted to get one.
Okay. Maybe 1 follow-up from me. Especially if the [indiscernible] comes closer with the next year all the verification going forward. Do you see any competitor of you especially, not a lot I guess, applying for the license or what do you think of their chances are in get a license and therefore, transforming the business models well into the more legalized area?
Yes. So according to some unconfirmed media sources and public sources, Lottoland so far is the only company that we are aware of that might be applying for a permission in Germany. It's too early to say what comes out of it. It's not really our job to deal with that application. That's what the regulator will do. We do think that they have to overcome some hurdles there due to their obscure holding structure and the unclear private ownership. And their financial structures will have to be -- I mean, basically, you have to be very transparent and a key requirement is to be reliable. So that's what the regulator will have to judge.In terms of if they would get a license or a permission, what would happen, again, this is hard to guess because they're a privately-owned company. But we believe that we are in a very strong market position. Their contribution would be limited by some factors. First of all, one can only sell the Germany-licensed products in Germany. And Lottoland is selling a lot of other products as well. They also, to a large degree, a casino games business. So we think we -- with that market -- strong market position that we have in the market with 40%-plus market share in the online market, whether they receive a permission or not doesn't change the outlook for ZEAL much.
[Operator Instructions] We'll now take our next question from Marie Grübner from H&A Investment Banking.
A couple of questions from my side. Can you maybe better explain what -- where you see your gross margin actually maxing out in light of, as Marius has highlighted, the Instant Win Games opportunity, for example? And also what are -- under which mechanics, we're actually able to generate higher gross margins on what you call the premium products, given that the market is, by and large, pretty regulated in terms of how much money one gets?Maybe explain the rationale of the higher gross margin on some of the ancillary products you offer? And secondly, is the IT platform transition completed? And how much one should expect in CapEx or IT investment in 2021? The second question.And then finally, more on the accounting side, the one-off costs that are -- were now to amount to a residual EUR 2 million in 2020. Are we assuming that those are off the table and that you've managed to really complete the integration without spending more here?
Thank you. So let me try to explain some of your questions. So the gross margin, what we have seen then if -- going back from 2019 with Lotto24 brokerage business going from 11.3% up to where we are today at 12.3%.What you see, this has been a pretty nice development for our business. And what makes this possible is more sale of lottery club, so lottery club is a service on top of the normal selling a ticket that you pool a customer together and that you can add a service fee on top of that one. So the more sale of these lottery clubs with a higher-margin and the blended margin will increase. But we also have other products like the social lottery, freiheit+, that is coming with a higher margin. But you're absolutely right. There are limitations, how much a social lottery can get. But it's higher than the underlying brokerage margin. So if the blended margin, which can be higher if we have more sales of premium products.So that was the first one -- question. And then obviously, the Instant Win Games will come with a higher-margin when we launch this sometimes next year as Helmut explained in the previous question. I think I wouldn't say where it can max out what we max out. What we have seen is that we have increases from the 11-point percent to now 12.3%. You see a slight increase. I would be actually careful for you to model this too aggressively. We think in the medium term, we can increase this [ 1 ] percentage point or 2 percentage points by adding these premium products, and that's how we deal with a business internally. In terms of your next question, the IT platform is, I'd say, almost complete. We are in the final stage of transferring the Lotto24 customer into our technical platform, which is called ]. And when all this is completed, we can retire the Lotto24 platform, which is quite similar to the Tipp one or the ZEAL one because we're coming from the same origin. But there are a little bit of work still left. We expect the full IT integration project to be finalized in Q1 next year, then we have the some customer [indiscernible] and then move all the customers into one single platform, which will create a number of benefits for us. And in terms of Capex, very little CapEx in our business. Most of our IT cost is related to people, and consultants, of course, but mostly people. There are a few CapEx costs we have. But it's low single digit millions, I would say EUR 1 million or EUR 2 million maximum a year. And I would probably expect this to be even lower. We need to buy some servers and computers, but technically, this is not expensive so it's low investment in Capex. And to your next questions for the one-off costs, we have very limited one-off cost left. So what we see is that we have been able to realize the synergies with our expected range of one-off costs. So you shouldn't expect anything material more from this point. Could be low amount of additionally severance payment or lower additions of other costs, but it should be quite minimal.
[Operator Instructions] We'll now move to our next question from Carsten Kinder from H&A.
Congratulations to an outstanding result. A follow-up question from my side. On the price increase, how has that been perceived so far, especially on your brand Tipp24, where you raised your ticket by 10 additional center fields. How have the consumers reacted to that? And then second question on your reported and adjusted EBITDA for Q3 of EUR 7.4 million, we have obviously 2 extraordinary factors to consider, EUR 3.7 million tax refund, but on the other hand, roughly EUR 3 million above the run rate marketing spend. If I net those 2 ones out, I have maybe an adjustment of EUR 0.5 million to make of those EUR 7.4 million. So let's call it EUR 7 million. Is that the current run rate without any one-offs in special items for the next years, excluding any growth, obviously?
Yes. Let me take the first question. And then, Jonas, if you could take the second one. So with regards to the price increase, so we see what we expected to see, an increase in spend, although not the 20% or 30% at the price increase for Lotto24 -- Lotto 6 out of 49 only, right? So that was where the price increase happened, 6 out of 49. What we've seen in the past, what we also expect to see going forward is that our customers will adjust their budgets over time. And that's a long-term trend that we've seen in the past that we expect to see here as well. It happens -- it sometimes takes 12 months for customers to adjust their budget, especially the subscription customers take a longer time to adjust their budgets. So some of that uplift that we are seeing right now, we don't expect to retain forever, but some of it will slightly decrease. The Tipp24 price increase, which was slightly different because we added another EUR 0.10 per bill to the price. That's actually had surprisingly little effect in terms of how customers reacted to the pricing. Jonas?
Yes. So coming back to your question. So what you can find is the details on Slide 6 from the presentation. So we have an adjusted EBITDA of EUR 6.9 million. So I'm using that number because that takes away the tax, the stamp due to tax that I explained previously because this is a one-off. So you have a EUR 6.9 million for the first 9 months. And we have confirmed our guidance for this full year of EUR 8 million to EUR 10 million.So I think we are well in that range. Going forward, of course, our increased volume will have a positive effect. But we will come out with a guidance for next year early 2021 when we describe all of the KPIs that we are guiding on. Let me clarify this, only sorry.
[Operator Instructions] It appears there are no further questions. So I'd like to hand the call back to our hosts for any additional or closing remarks.
Closing remarks. Thank you very much for taking the time and listening to us. As you can see from the numbers, we have made a very strong first 9 months of the year. It looks very promising in the future. But thank you so much for taking the time listening to us and having your questions answered. So -- and as we will speak to you shortly. And if there is anything in particular you want to have help with don't hesitate to reach out to us we are more than happy to help you. Thank you very much.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.