Regulatory headwinds hits XLMedia revenue and profit in 2018

Digital performance marketing solutions provider XLMedia has reported a 14.4% decrease in revenue for 2018, which it attributed to a number of regulatory issues impacting performance over the year.

This, XLMedia said, had prompted the business to focus efforts on its higher-margin publishing division and its core gambling and personal finance products going forward.

Revenue for the year ended December 31, 2018, amounted to $117.9m (£89.4m/$104.3m), with a 4.6% increase in publishing revenue to $65.8m offset by a 29.0% decrease in media revenue to $47.1m. Revenue from other sources was also down, falling 40.6% to $4.9m.

This was blamed on a difficult first half in which the business faced a number of issues, namely regulatory uncertainty in a number of territories. Search engine optimisation (SEO) performance issues also played a role in the decline, with key publishing assets hit by spamming and other attacks, as well as technical issues.

XLMedia said the recovery of these assets had taken longer than initially anticipated, though publishing revenue was up 3% in the second half of the year. These issues had also prompted the business to invest in improving defences against future spamming attacks.

The decline in revenue saw revenue-related costs for the year fall, down 22.6% to $49.9m, with gross profit for the year falling 7.1% to $67.9m. However, operating costs increased 4.2% to $32.3m, with a drop in research and development costs offset by increased sales and marketing expenses of $7.4m and general and administrative expenses rising to $23.5m.

This left an operating profit of $35.7m – down 15.4% year-on-year – which was reduced by a further $9.9m in impairment losses. These impairment losses resulted from the decision to reduce media activity going forward in order to focus on the core publishing division, and resulted in full-year operating profit for 2018 falling 36.8% to $25.7m.

Once net finance expenses of $587,000 were stripped out, XLMedia posted a pre-tax profit of $25.2m. After income taxes of $4.4m, XLMedia posted a net profit of $20.8m, down 34.8% year-on-year.

“2018 has been a challenging year but our business is built on strong foundations giving us the confidence to cease low margin activities and concentrate on the higher margin Publishing division, returning the business to growth,” XLMedia chief executive Ory Weihs said.
 
For the year ahead, XLMedia will focus on growing its gambling and personal finance market networks, with three-year development plans set out for each vertical. There is a particular focus on the personal finance offering, which grew to 6% of group revenue in 2018, and on the US market.

Over 2018, XLMedia completed a number of acqusitions, including that of Finnish gambling comparison assets for $18m and a UK-facing bingo comparison site WhichBingo.co.uk for $10.5m. It also acquired a US-facing personal finance site InvestorJunkie.com for $5.8m and a network of US and Canadian assets. In 2019, it will look to complete the integration of these assets, and develop its infrastructure to support its broader portfolio.

This will be accompanied by a reduction in low-margin media activities, leveraging the remaining activity across its publishing assets.

“Looking ahead, the group will be prioritising internal investment across its publishing activity to further build its asset base organically, in particular, in the North American gambling and personal finance verticals,” Weihs said. “Whist we continue to assess strategic acquisition opportunities, we anticipate the bulk of our mid to long-term asset growth to come from organic asset development.
 
“Our focus remains firmly on improving operational excellence and further developing assets organically to maximise shareholder value.”