Large rise in marketing spend eats into earnings in Zeal H1
Zeal reported €54.8m for revenue in H1 2023, an 11% rise from the €49.4m the company reported in the same period the previous year.
The Lotto24 operator highlighted the impact of a series of successful marketing campaigns in high jackpot phases as driving the business’ customer acquisition and subsequent revenue during the period.
“The growth of our transaction volume in the second quarter of 2023 was near record-breaking and a whopping 18.8% higher than in the second quarter of 2022 – in this respect, we even recorded the second-best quarter in the company’s history,” said Zeal CFO Jonas Mattsson.
“Strategic growth in the ecommerce environment is becoming increasingly difficult, but with our attractive products and diverse marketing campaigns, we are confident that we will continue to impress in the market,” he added.
Increased acquisition costs per customer
In the first half of 2023 Zeal reported 349,000 new customers, a 20% year-on-year increase. However, the business recorded increased acquisition costs per registered new customer, reflecting higher media costs due to a competitive business environment.
As such, the operator said marketing expenses stood 44% higher than 2022 at €20.0m, compared to €13.9m in 2022.
We pursue a focused marketing strategy and invest disproportionately in high-jackpot phases,” said Mattsson. “The short-term decline in earnings at high jackpot phases is a perfectly normal development that will settle down again in the further course of the fiscal year.”
The business’ other operating expenses also rose significantly, increasing 29% to €31.6m.
Rising costs eat into profits
Due to rising costs, which Zeal said resulted from increased investments in customer growth, the business’ earnings before interest, tax, depreciation or amortisation (EBITDA) fell to €13.8m, compared to €16.4m the previous year.
Zeal’s profit also fell sharply during the period, dropping 40% from €9.4m to €5.6m.
The business’ guidance for FY23 remained stable, with Zeal expecting revenue for the year to be in the €110m-120m range.
The operator said it plans to invest “significantly more” in new customer acquisitions than in 2022, and expects total marketing expenses to range between €34m and €39m for the year.