888 posts record earnings despite revenue decline in 2018
Online gambling operator 888 Holdings has reported record EBITDA for the 12 months through to December 31, 2018, despite also posting a slight decline in revenue for the full year.
Total revenue came in at $540.6m (£408.5m/€479.9m), down 2% from $541.8m in the previous year.
888 was hit by revenue declines across both its B2C and B2B businesses over the past year, with B2C revenue down by 2% year-on-year to $479.3m and revenue from its B2B arm Dragonfish falling 8% to $529.9m.
The operator’s B2C arm was particularly hit by a 37% drop in poker revenue – down to $49.0m – while bingo revenue also slipped 17% to $32.4m. In contrast, casino revenue was up 8% to $317.6m and sport up 6% to $80.3m.
Looking to B2B, 888 has said Dragonfish was hit by a number of factors, such as the overall fiscal and regulatory challenges facing the UK bingo market, reduced marketing spend by some partners, and the termination of the deal with former B2B partner Cashcade following its decision to migrate its brands to parent company GVC's proprietary platform.
Despite these declines, 888 was able to boost its earnings performance by cutting back on various expenses during the past year. Operating expenses fell by $1m to $137.8m, while research and development expenses were down from $35.4m to $32.8m.
888 also reported lower selling and marketing expenses at $155.0m, compared to $162.5m in 2017, while administrative expenses dipped from $29.2m to $27.3m. In addition, 888 paid less in gaming duties, with this total down from $75.2m to $69.9m.
As a result, adjusted EBITDA amounted to $107.1m for the year, a figure that is 6% more than the $100.7m posted at the end of 2017.
Adjusted profit before tax was also up 11% year-on-year to $86.7m, while 888 posted a profit before tax of $108.7m, a significant increase on $18.8m in 2017. The operator put this rise down to exceptional income, compared to exceptional charges in 2017, as well as VAT accrual release and gain from re-measurement of previously held equity interest in joint ventures. Once taxes of $13.9m were paid, 888's net profit for the year stood at $94.8m.
Reflecting on the operator’s yearly performance, Itai Pazner, who was appointed as CEO of 888 in January, was pleased with the results, praising the significant strategic progress made by the group during 2018 and since the start of 2019.
“Despite headwinds in some areas of the business, the financial performance in 2018 was resilient and we achieved a record EBITDA outcome for the year,” he said. “The group achieved continued growth across several regulated markets, primarily in Continental Europe, underpinned by good momentum in casino and sport.”
Pazner also gave an update on 888’s performance and progress so far in 2019, picking out its recent acquisition deals for JPJ Group's Mandalay operating business, including the Costa Bingo brand, and Irish sports betting operator BetBright as key highlights.
“The positive momentum at the end of 2018 has continued into the first quarter of 2019 with average daily revenue in 2019 to date up 10% compared to Q4 2018 reflecting improvements across major KPIs,” he said.
“Average daily revenue at constant currency in our UK B2C business is up by more than 10% year-on-year in Q1 so far. Overall, group trading during the financial year to date is 5%* higher at constant currency year on-year.”
Looking ahead to the rest of 2019, Pazner spoke positively about further growth prospects for the operator across a number of markets.
“Underpinned by the strength of 888’s technology and the significant strategic progress made by the group over recent months, the Board continues to see a number of significant growth opportunities for 888 in both new and existing markets,” he said.
However, analysts from Regulus took a much less positive view of the results, suggesting 888 is “losing market share on an underlying basis in most of its core markets”, with only Italy and the Middle East and Africa showing growth.
Analysts said: “The big question is whether this is operational (e.g. cutting marketing and development in response to UK pressures and broader regulatory costs) or more structural (e.g. tired brands, legacy technology, lack of mass market capability). The longer the underperformance goes on for, the more likely the reasons are to be found in the latter categories, in our view.”
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