Finance

Google demotion and Covid-19 hit XLMedia’s H1 performance

5 minutes read
Affiliate marketing services provider XLMedia has reported a year-on-year drop in revenue and net profit in the first half, primarily due to the impact of the novel coronavirus (Covid-19) and Google demoting a number of its we

Revenue for the six months to 30 June amounted to $27.7m (£21.6m/€23.7m), down 34.7% from $42.5m in the corresponding period last year.

XLMedia, which in July warned investors about an expected drop in revenue, said the decline was down to two main factors, the first of which was the decision by Google in January to manually demote a number of its websites, rather than basing their rankings on its algorithm. At the time, XLMedia warned this would lead to a “significant decrease in traffic” to the sites.

The provider also noted the impact of Covid-19, saying while it was able to adjust to the remote working requirements caused by the pandemic, revenue across personal finance and sports was hit. However, XLMedia said it saw early signs of recovery later in H1 when major sports activity started to resume.

XLMedia said the impact of the Google manual ranking penalty and Covid-19 on its revenue was approximately negative $2m per month from late March.

“The Google penalty, which was identified in January, has been well documented in a series of updates in the first six months of the year and, while there remains a lot to be done, we made good progress in rebuilding and upgrading the assets during the first half,” XLMedia chief executive Stuart Simms said.

In terms of spending for the period, operating costs remained level at $14.8m, with XLMedia’s main outgoing being general and administrative costs at $11.5m, up slightly from $11.2m last year.

Research and development spend almost doubled from $696,000 to $1.2m, but sales and marketing expenses were down by 15.4% from $2.6m to $2.2m. Aside from this, cost of revenue fell 18.4% to $11.1m.

Earnings before interest, tax, depreciation and amortisation fell to $5.1m, a significant decline from $18.6m in H1 2019.

Operating profit before impairment and reorganisation costs stood at $1.8m, a down from $14.3m last year, while after accounting for $1.5m worth of reorganisation expenses, operating profit was down 98.1% to $279,000.

XLMedia also noted $108,000 in net finance expenses, which left a profit before tax of $171,000, down 98.8% from $13.8m last year. The provider paid $72,000 in tax during the period, leaving it with $99,000 in net income, a 99.2% decline from $12.2m in H1 of 2019.

Reflecting on the performance, Simms said despite the drop in key financials, the provider was able to make progress with some of its strategic priorities. These include a focus on building a portfolio of online assets, as well as establishing branded, content-rich and engaging websites.

“Over the last six months, we have made good progress in reshaping the organisation, reducing complexity, flattening the hierarchy and beginning to bring in the complementary skills required for the future,” Simms said.

“Looking outward, as we laid out in April, the priorities of the business are changing, to reduce risk and drive sustainable growth in the top and bottom line.”

Simms added that XLMedia was focused on restoring its casino sites in the Google rankings, revealing the provider carried out an unsuccessful test resubmission of a small number of sites to Google in July.

“We believe this test was not successful because the assets remained on our proprietary technology platform, rather than having been fully rebuilt on an open-source technology suite, as we plan to do; however no significant feedback or clarity is provided on the reasons for such an outcome,” Simms said.

“We are pursuing multiple routes to re-establishing our traffic levels in the casino vertical.”

This, Simms said, will include XLMedia working with a joint venture partner to drive two of its original premium websites, while a small number of the original penalised sites will be put forward for reconsideration in the fourth quarter,

For most of its other sites, Simms said XLMedia has started to develop “new high-level sites” using internal and external resources, with these sites set to consolidate traffic from several former premium sites. Simms said this process should be largely complete by the end of the first quarter of 2021.

“This multi-track approach minimises risk and maximises possible upside, while focusing resources and ownership on a more concentrated set of assets, which will also be key well beyond the build phase,” Simms said.

Taking these efforts into account, Simms said XLMedia is now in a good position to pursue growth, but warned it will continue to feel the impact of Covid-19 for some time.

“The second half of the year has started positively with much of the global sports programme being reopened and compressed into a couple of months, an uptick in personal finance activity and the stabilisation of the casino vertical,” Simms said.

“However, there are clear signs of second waves of Covid-19 across the territories we operate in, and any tightening of restrictions could impact the recovery in our personal finance and sports verticals; the very recent second lockdown in Israel could also delay elements of the transformation programme.”

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