NetEnt CEO demands improvement despite 2018 revenue growth

Swedish casino games developer NetEnt has reported a 8.9% year-on-year increase in 2018 revenue, though increased costs saw profit decline in the fourth quarter of the year. 

Revenue for the 12 months ended December 31, 2018 grew to SEK1.8bn (£149.4m/€170.3m/$192.0m). The supplier signed up 31 customers over the year, down from 37 in 2017, and launched its products with 38 partners.

The company saw 2018 operating expenses rise 12.0%, due in part to increased personnel expenses of SEK535.9m, with depreciation and amortisation up 36.0% at SEK215.0m. This left an operating profit of SEK601.1m.

NetEnt benefitted from the weakness of the Swedish Kronor, which contributed to financial income rising to SEK62.1m, helping offset finance-related expenses more than doubling to SEK41.0m.

As a result NetEnt’s pre-tax profit grew to SEK622.1m, with the full-year profit growing 5.5% year-on-year to SEK577.2m, once tax of SEK44.9m had been paid.

For the fourth quarter, revenue was up 9.5% year-on-year to SEK465.4m, with six new titles released in the three months ended December 31, 2018. NetEnt chief executive Therese Hillman (pictured) noted that “several” of these titles had performed well.

The supplier signed eight new licensing agreements during the period, as well as launching with nine new customers. NetEnt has agreements in place with an additional 22 customers yet to go live at the end of 2018, down from 30 at the end of 2017.

The majority of revenue came from the mobile channel, which accounted for 61.4% of game win in the period, up from 53.8% in the prior year. Locally regulated markets accounted for 37% of total game win over the quarter, though Hillman noted that this would have increased to more than 50% if Sweden, which opened its igaming market on January 1, 2019, had been included.

Nordic markets continue to perform well for NetEnt, with 14% of game win generated from Sweden, and a further 16% coming from other Nordic markets. The UK contributed a further 13% of game win, down one percentage point from Q4 2017, with 49% coming from other European markets. The rest of the world, including New Jersey, Mexico and British Columbia, contributed the remaining 9%.

Operating costs rose 17.2% year-on-year in Q4 to SEK319.2m, which led to operating profit for the quarter falling 4.2% to SEK146.2m.

Once finance-related costs of SEK4.1m were stripped out, pre-tax profit came in at SEK142.0m, down 6.9% from 2017, with the post-tax profit dropping 11.8% to SEK136.6m.

Moving to the company’s performance in the first weeks of 2019, CEO Hillman said that NetEnt’s game win in Euros was down around 5% from 2019, as a result of lower volumes in the re-regulated Swedish market.

“While it is still too early to predict the mid- to long-term effects of the Swedish regulation, we expect the key customer signings in Q4 2018 and our upcoming game releases to contribute to new revenues in 2019,” she said. “When it comes to organic earnings growth, we have clearly higher ambitions than the pace we saw in 2018.”

Hillman also noted that NetEnt was closely following developments in the US in the wake of the Department of Justice’s Office of Legal Counsel revising its stance on the Wire Act.

“This has created some uncertainty, but at this stage we do not see any reason to reconsider our US growth plans, which include growing on the regulated markets in New Jersey and Pennsylvania,” she said. “With regards to timing, however, we see that the launch in Pennsylvania will be delayed due to changes in the regulatory requirements.”

NetEnt will also look to ramp up its game release schedule in 2019, with the company aiming to release between 30 and 35 games during the year, compared to 21 in 2018. This has already seen the supplier cut around 55 roles at its Stockholm headquarters to keep costs under control.