Zeal Network blames weak jackpot environment for flat revenue growth

Zeal Network, a provider of lottery products in Germany via Lotto24.de and Tipp24.de, has posted a modest 1% year-on-year (YoY) increase in revenue for the first nine months of 2021 to €65.1m (£55.7m). The Hamburg-based company partly attributed the performance in the first three quarters to the fact “the market environment for lotteries in Germany remained relatively weak”. Zeal said the jackpot for European lottery ‘Eurojackpot’ only reached €90m three times, compared with six times in 2020, while the mandatory pay-out for Germany’s LOTTO 6aus49 – set at €45m since 23 September 2020 – was not reached at all. The company said low jackpots have a negative impact on billings, gross margin and customer acquisition. Despite the “unfavourable market conditions”, Zeal said billings rose 5% to €493.2m, which meant gross margin remained stable at 12.2% (12.3% 2020). Furthermore, Zeal announced 446,000 new customers in Germany were acquired, yet this was a 43% decline on the new users acquired in the country during the first nine months of 2020. The ‘cost per lead’ was €27.57. Marketing expenses amounted to €18.6m, which was down on the €25.3m shelled out to the end of September last year due to the weaker jackpot environment. As a result of reduced marketing outlay, Zeal said EBITDA rose significantly from €6.9m in 2020 to €17.6m for the first nine months this year. EBIT and net profit were €11.1m and €7.3m respectively. Jonas Mattsson, CFO of Zeal Network, said: “The fact that we have managed to continue to grow with a significantly weaker jackpot development compared to the previous year and at the same time significantly improve the profitability makes us proud.” He continued: “It furthermore demonstrates that we have taken the right measures by adjusting marketing investments and implementing strong cost discipline to match the market reality.” In July, Zeal made an offer to LOTTO24 shareholders to buy all the shares in the operation not directly held by Zeal for a cash consideration of €380.97 per LOTTO24 share. This offer was accepted for a total of 22,834 shares, and by 13 September LOTTO24 was delisted. Zeal said it now holds more than 1.5 million LOTTO24 shares, equating to around 94.9% of LOTTO24’s share capital. On a final note, a 40-year-old from Bavaria scooped €49.3m in September, the largest single prize in Zeal’s 21-year history.