Five things we learned from 888’s results

Sport is a player

888sport revenues rose 49% (58% in constant currency) during 2016 to $51.9m (£41.7m) with the UK, Italy and Spain all now highlighted as key territories for the product. While it’s only 11% of the total B2C business and less than 20% the size of the major sportsbook operators’ businesses, it’s now at a scale that should cause a few of them a moment’s pause. In such hugely competitive markets as the UK and Italy, few operators can afford to lose market share – and 888 is clearly taking some, growing above the general market rates.

The value of sports to the 888 business is to some degree as a low cost acquisition channel for its casino vertical, but it is rapidly approaching a scale that could see it becoming a vertical worthy of much more product development. The theory to-date has been 888 must buy expertise in sports in order to grow, but perhaps its nascent sports business can stand on its own two feet and compete directly with the major players in its core markets. And that’s a bet you would have got very long odds on just a couple of years ago.

Mobile casino cashing in

One of the clear trends we’ve seen in 2016 is the growth in mobile casino. While sports betting retains a “been there done that” air about mobile, with discussion around the platform often considered old hat, the casino vertical still has a lot of ground to cover in terms of UX and player conversion. 888 pointed to 60% of UK B2C revenue coming through the mobile platforms, up from 47% the previous year, and implied acquisitions and deposits were in the majority during the period also.

“Mobile remains a key driver in terms of revenue, deposits and customer recruitment across product verticals for 888 and the Group continues to benefit from owning its own proprietary mobile solution and games,” 888 said in a statement. And it’s the latter part that is really key to 888 pushing on and driving incremental revenue both in the UK and throughout regulated Europe. The ability to quickly add features and UX enhancements on the mobile platform will be key to driving growth in the year ahead and 888 looks better placed than many of its competitors here.

Regulated Europe is the growth engine

Italy and Spain were the highlights in the period with revenues up 66% and 45% respectively as 888 took advantage of the addition of slots in Spain and sports in both territories. The UK posted more modest growth of 5% (albeit 16% in constant currency) but remains by some distance its most important market. Spain’s rise to become the second largest market is an interesting development though for a firm that has historically been a powerful operator in the dot.com sector. And while some of its peers are looking to grey markets for short-term cash grabs, there is no doubt the 888 of 2017 is focused squarely on regulated Europe for future growth.

The operator said: “Other markets (America and Rest of World) continue to represent smaller proportion of Group’s revenue and, as such, fewer resources have been allocated to them, which resulted in a consequent decline in revenues year on year.” The firm is active in Romania and Denmark, and is likely to be a player in the regulated Netherlands market whenever that opens, and it will be interesting to watch any moves in Eastern Europe. But you suspect any significant regulated growth from this point would come through acquisition and it would be no surprise to see 888 make a move for operators in any of Europe’s regulated markets.

Poker in need of reinvention

The poker vertical was once key to driving revenue growth for 888 but has struggled in the past three years dipping from a high of $93.7m (£75.2m) in 2014 to $84.4m (£67.7m) in 2016 and down 3% year-on-year on a constant currency basis. Echoing the seemingly never-ending refrain of “challenging backdrop” for poker, 888 nonetheless pointed to a 6% rise in FTDs in the period and seems focused on reinventing the product for a new market. “In 2017 a major focus will be on growing 888poker by developing new variants and games that are designed to enhance the customer experience on mobile devices,” it said.

Poker has struggled on the mobile platform to-date with the complexity of the game and long session times not really suited for the snacking style of content consumption. PokerStars is also investing in new game formats for mobile and it’s sure to be a busy year of innovation in the vertical as both operators try and find the right formula. Until then it’s hard to see poker regaining its status as the star performer of the 888 show.

Growth comes at a cost

Marketing costs rose sharply during 2016 both in real terms and as a percentage of overall revenue. Total marketing spend was $170.2m (£136.6m) for the year representing 32.7% of revenue, up from 30.1% in the previous year. “The marketing to revenue ratio stabilised in the second half of the year at 30.9%, after a peak of 34.4% in the first half of 2016, resulting in an overall 32.7% ratio in 2016,” 888 said. The hike in spend was driven in part by the sports product, which had a major push around the Euro 2016 tournament, and by increased marketing spend on casino in regulated markets.

While we note the firm got costs under control in the second half of the year it’s tough to see it fighting this trend as it tries to build scale in markets such as Romania and Denmark and hold its position in key markets such as the UK, Italy and Spain where competition is fierce. Sport also remains sub-scale to its peers and will continue to require substantial marketing investment to continue its growth rates. Once again you feel acquisitions could really be key to 888’s future.