Becher: Kambi faces “near-term headwinds” but modularisation and market expansion points to bright future

Kambi Group reported a 30.3% year-on-year decline in bottom-line net profit during the third quarter of 2024 as a slight increase in revenue was offset by increased costs.

Group revenue for the three months to 30 September hit €43.0 million (£35.9 million/$46.2 million), up 2.1% from Q3 last year. However, this fell short of the €45.7m recorded in Q2 of this year.

Q3 saw Werner Becher take over as CEO at Kambi. He replaces Kristian Nylén, whose exit was confirmed in January, although Becher did not officially take charge until late July.

Commenting on his first few months at the helm, Becher spoke of strategic and commercial progress with Kambi’s modularisation strategy. He picked out the Odds Feed+ partnership with Hard Rock Digital in particular.

Becher also highlighted “exciting opportunities” for its turnkey sportsbook, including in the Brazil market, where Kambi expects to go live early next year. It has already taken KTO from a competing sportsbook provider in the market.

Through its partnership with Rush Street Interactive, he hopes for further growth across the Americas.

Kambi’s embrace of the Americas can be seen in its revenue performance. Some 52% of all Q3 revenue came from the Americas, up from 50% last year. Europe revenue share fell from 47% to 45%, with rest of world level at 3%.

Kambi must deal with challenges of losing partners

However, Becher references certain challenges associated with the sportsbook business. This includes the departure of larger clients including Kindred and LeoVegas.

While Becher said Kambi has coped well in the past after losing larger sportsbook clients, the group will face challenges from smaller partner revenue within this area.

“One of my observations prior to taking this role was that although Kambi had seen some large operators move away in recent years, it still delivered growth, albeit modest, during this time,” Becher said.

“This gives me great confidence that, through the ongoing diversification of our products and partner roster, we will increasingly reduce the potential impact of future partner movement and create a much more stable base for long-term growth.

“In the meantime, however, we must deal with the challenges that losing partner revenue brings. This is why I am particularly happy with the recent progress we have made in modularising our sportsbook and expanding our revenue streams, aiming to come up to scale with these products within a couple of years.”

Higher spending hits net profit in Q3

Current levels of spending, coupled with only minor revenue growth, led to a drop in net profit in Q3. Operating costs climbed 4.6% to €29.5 million, meaning earnings before interest and tax (EBIT) fell 21.7% to €3.6 million.

On top of this, EBITDA was 17.5% lower at €4.9 million, with EBITDA margin shrinking to 11.4%, compared to 14.1% in Q3 2023.

Total expenses – including amortisation and depreciation – were up 5.1% to €39.4 million.

After accounting for financial costs, this left a pre-tax profit of €3.7 million, a decline of 19.6%. Kambi paid €1.3 million in tax, meaning a net profit of €2.5 million, down 28.6%.

However, when including €599,000 in positive foreign currency translation impact, this resulted in a bottom-line net profit of €3.1 million, a drop of 30.3%.

Becher: Kambi going through transition period

On this note, Becher said Kambi is looking at ways to be more efficient moving forward. This, he said, includes consideration of its cost base, with potential for the group to capitalise more on artificial intelligence.

“This includes realising additional synergies from acquisitions and further assessing the use of artificial intelligence across the business, to reduce our underlying costs,” he said.

With this in mind, Becher said while Kambi faces “some difficult near-term headwinds”, he is confident about the group’s “bright future”.

“We have some exciting opportunities ahead of us, such as the great potential of our new products and the prospect of a regulated Brazilian market around the corner,” Becher said. “I’m sure once we get through this period of transition, we will have a more diverse, sustainable and faster growing business.”

Could Kambi miss full-year targets?

On the back of Q3, Kambi has issued updated guidance for the full year. It expects revenue to be between €172.5 million and €175.5 million, compared to an earlier forecast of €170 million to €180 million.

However, on the flipside, excluding foreign exchange movements and any non-recurring expenses, costs could be kept lower. Kambi said total spend will likely range from €155 million to €157 million, which is at the lower end of the €155 million to €165 million estimate made at the start of the year.

Current year-to-date figures, for the nine months to the end of September, show revenue was 2.3% higher at €132.0 million. Operating costs were marginally lower while total spend was only 1.4% higher year-on-year.

Pre-tax profit is 14.3% ahead at €14.4 million while net profit after tax improved by 10.6% to €10.4 million. After foreign currency translation adjustments, bottom-line net profit was 14.9% up at €11.6 million, while EBITDA climbed 9.6% to €43.4 million.

The supplier has also launched a share buyback programme, bringing in Carnegie Investment Bank to conduct the share repurchases. The total value of the shares bought is capped at €12 million.

Where could Kambi be heading in 2025 and beyond?

Despite the noted challenges, Becher retains a positive, long-term outlook for Kambi. In his post-Q3 notes, he said part of the appeal of the CEO was the “great potential” Kambi has as a business.

Around the time of his confirmation as CEO, Kambi made a separate announcement about its long-term hopes. The group withdrew revenue and earnings targets for 2027 due to slower than expected regulatory progress in key regions.

In January last year, Kambi set out several forecasts and targets it was hoping to hit by 2027. This included trebling FY2022 revenue to between €330 million and €500 million, with operating profit to be in excess of €150 million.

However, these targets are now a thing of the past, with Kambi flagging concerns regarding slower than expected progress towards regulation in certain markets.

Brazil, for example, has taken far longer to launch legal sports betting while previous CEO Nylén highlighted slow progress in California as another blocker in Kambi’s FY2023 results.

Shares in Kambi are trading down 10.87% at SEK121.40 pence per share in Stockholm this morning.