Higher spending pushes profit down at Raketech in first half

Online affiliate and content marketing provider Raketech has reported a 64.0% year-on-year decline in net profit for the first half of the year, after an increase in revenue was offset by a rise in operating costs.

Revenue in the six months to 30 June amounted to £13.6m (€15.1m/$18.0m), up 12.0% from €12.1m in the same period last year.

Raketech put this increase down partly to the performance of its Casumba online casino brand – purchased in September 2019 – as well as the impact of the newly acquired Lead Republik, the data-driven igaming affiliate network bought in March this year.

Revenue share agreements accounted for 46.4% of total revenue in the first half, ahead of upfront payments on 39.9% and fixed fees at 13.7%.

Casino was by far the main source of income, accounting for 83.8% of revenue, up from 69.9% last year. Sports betting share fell from 26.2% to 12.1% as Raketech felt the impact of the cancellation of sports fixtures due to the novel coronavirus (Covid-19) pandemic, while other revenue made up the remaining 4.1%.

Looking at geographical performance, and the Nordics remained the core market for Raketech, though revenue share in the region fell from 95.8% of revenue in H1 of 2019 to 84.1% this year. In contrast, the percentage of revenue from other markets jumped from just 4.2% to 15.9%.

However, despite the increase in revenue, Raketech also saw a rise in operating expenses, which grew 45.6% year-on-year to €10.7m, as costs climbed across the business.

Direct expenses were up by 84.2% to €3.5m due to increased efforts within paid media, primarily through Lead Republik and the Rapidi white label casino. Staff benefit expenses also increased 22.7% to €2.7m, driven by the addition of senior management and other new staff to the Raketech team.

Other expenses jumped 38.5% to €1.8m on the back of the acquisition of Lead Republik and Casumba, while depreciation and amortisation costs were also up 62.5% to €2.6m.

As to how this impacted earnings for the period, Raketech said reported earnings before interest, tax, depreciation and amortisation (EBITDA) fell 14.1% year-on-year to €5.5m.

Operating profit was down 39.4% to €2.9m, and after accounting for €452,000 in finance costs, this left the provider with a profit before tax of €2.4m, down 62.8% from €6.6m at the same point in 2019.

Raketech paid €157,000 in tax during the first half, which meant the provider ended the half with €2.3m in comprehensive profit, 64.0% lower than €6.4m at the same point last year.

However, despite the drop in profit, chief executive Oskar Mühlbach hailed the first-half performance, especially as Raketech was able to increase revenue despite the disruption caused by Covid-19.

Mühlbach added that such was the success of staff working remotely, Raketech will now move to a flexible working setup, which will replace the traditional office with a “dynamic interaction hub combined with remote work”.

“Working remotely during Covid-19 has in contrast to what one might believe, proven to be very efficient for us and we have been able to notice improvements with regards to cooperation, communication as well as performance management,” he said.

“In addition to spending less on office related costs and administration the concept allows us to quickly scale up and down according to what is best at every given situation. It also allows us to attract unique top talents, sometimes only available from outside of Malta.”

Focusing on Raketech’s performance in the second quarter, when the pandemic was at its peak in many of the provider’s key markets, revenue was up 24.1% to €7.0m, again boosted by the Casumba and Lead Republik operations.

However, operating expenses were up 49.5% to €5.5m, which in turn pushed operating profit down 22.8% to €1.5m and EBITDA 3.5% to €2.8m.

Profit before tax fell 25.9% to €1.3m, and after Raketech paid €82,000, this left it with €1.2m in comprehensive profit, representing a year-on-year decline of 26.9%.

In terms of current and future performance, revenue in July amounted to €2.4m, despite sports still trailing behind due to Covid-19. However, Raketech said that despite revenue outside the Nordics increasing 20%, volatility in Sweden due to the new regulations related to Covid-19 makes it challenging to navigate.

“The unpredictability mentioned in the previous report is still very much present even though dependency on this market is lower,” Mühlbach said. “Depending on the market development on our existing markets, it is worth mentioning that our US organic investments could have a slightly negative effect on our margins in the short- to mid-term.

“Although volatility might be high, I am excited by the combination of Raketech being both debt free and operationally stronger than ever. This allows us to continue our efforts to deliver on our strategic goals within product development and diversification as well as geographical expansion, organically and through M&A.”