Value strategy hits bwin.party Q1 revenues hard
Revenues down in all four verticals, but Teufelberger remains "confident about the group's prospects"
A drive to streamline bwin.party’s business has hit Q1 revenues with all verticals showing decline year-on-year, but CEO Norbert Teufelberger (pictured) remained confident of future growth saying the group needed to “do less, but do it better”.
Revenues for the three months ending 31 March fell 17% year-on-year, down from 215.9m to 180.2m, with the operator blaming the decline on regulation, the dot.com migration and its move to reduce its geographical reach to a smaller number of key territories.
While this approach is expected to deliver savings of 70m in 2013, group revenue for the year is expected to decline 10% in its full-year figures as the firm continues its restructuring process.
Trading in the current quarter is down 22% from the equivalent period in 2012 with average daily net revenue in the six weeks to 12 May down 15% from Q1’s figure of 1.9m to 1.6m.
And the firm also stated the move from bwin to the party platform in its dot.com markets had reduced cross-sell revenues from sports into poker and casino with both products showing “lower than expected player activity” in the period.
Despite a admitting that the operator was “unlikely to see any meaningful impact on [its] top line before” H2, 2013, Teufelberger remained bullish about bwin.party’s growth potential.
He pointed to a series of new product launches, the launch of poker and casino in New Jersey and cost-cutting measures as reasons to be “confident about the group’s prospects”.
Analyst Ivor Jones of Numis Securities issued a Buy recommendation following the Q1 announcement, saying the transformation of the business “is on track”.
“Out has gone scatter gun marketing to new players in countries where regulation is uncertain and, with it, a chunk of costs,” he said.
“What will remain is a business focused on improving services to, and retention of, existing customers and expansion into new markets, of which the US is by far the most important. We expect to see some preliminary evidence of success in Q3,” he added.
The move to focus on core regulated markets was described by Teufelberger as “deliberate actions” to “operate with a lower cost base and form the foundations for future sustainable growth”.
“As we optimise the shape and size of our business across a more focused European footprint we are reducing our marketing spend significantly,” Teufelberger said. “Instead of acquiring new customers in more than 30 markets, we will focus on around 10.”
In its key German market the implementation of a 5% turnover tax saw sports betting turnover decline 52% year-on-year leading to a 31% overall drop in sports betting turnover, but a rise in gross margin to 9.9% meant net revenue fell just 5% to 67m for the vertical.
Bwin.party’s casino operations fared worse, with revenues down 20%, from 71m to 57m for the quarter, with the move to shut down acquisition marketing in a number of territories seeing new player sign-ups fall 61% from the first three months of 2012.
In contrast, new player sign-ups for bingo rose 6% year-on-year, thanks to an increase in marketing for Foxy Bingo, although the increase in bonus costs of this acquisition drive saw revenues fall 9% to 14.2m.
However, the operator pointed to Gioco Digitale’s ability to maintain its leading position in the “challenging” Italian market, and the performance of its Binguez brand in Spain “despite challenging macroeconomic conditions” as highlights.
Bwin.party’s poker offering again proved to be the operator’s weakest vertical, with new player sign-up and reduced cross-sell from the bwin.com site blamed for a 37% decline in revenues, which fell to 33.1m.
This continuing underperformance will be addressed with the launch of a “revised” poker product designed to “improve the revenue trajectory of “¦ [the] business” in the second half of 2013.