32Red buoyed by increased marketing but player acquisition costs rise

24th September 2014 8:39 am GMT

UK-listed online gaming operator 32Red said Wednesday that its revenue and earnings growth during the first half of 2014 reflected increased marketing investment in the period, and resulted in a 35 per cent increase in the number of new players recruited.

The company recruited 23,566 new players to its core 32Red casino brand during the period, having increased its investment in marketing, with improved player retention and reactivation activities resulting in a 20 per cent increase in total active players to 50,890.

Casino gross gaming revenue (GGR) player yield rose marginally by 1 per cent to £400, although casino cost per acquisition climbed 13 per cent to £180, from £159 a year ago.

“It is particularly encouraging to see player GGR yields remain steady given the increased levels of new and active players,” said 32Red in a statement.

Total GGR from the 32Red casino rose 21 per cent to £20.4m during the period. The brand’s mobile channel continues to grow, with revenue soaring 124 per cent year-on-year and now representing 32 per cent of total casino revenue, up from 17 per cent last year, and attracting approximately half of all new players.

The 32Red Italian casino saw GGR increase 130 per cent top £1.1m, with 3,084 new players recruited during H1, bringing the total number of active players to 5,794. The company has limited marketing investment in Italy, ahead of anticipated positive changes in the market due at the end of the year.

The operator said that initial trading and the levels of new player recruitment from its recently launched Kambi-powered sportsbook, which has been fully integrated with 32Red’s Microgaming platform, has been “encouraging” with focus centred on cross-selling the casino products to new sportsbook players.

H1 2014 Results

British Pounds (£) H1 2013H1 2014
Gross Gaming Revenue 19.0m22.6m
Customer Incentives (6.3m)(7.3m)
Net Gaming Revenue 12.7m15.2m
Cost of Sales (8.6m)(10.2m)
Gross Profit 4.1m5.1m
Administrative Expenses (2.3m)(2.8m)
Share Option Costs (0.1m)(0.2m)
Depreciation and Amortisation (0.4m)(0.7m)
Operating Profit 1.4m1.4m
Exceptional Items (0.1m)(0.2m)
Profit for the Period 1.3m1.2
Basic EPS 1.63p1.77p

Total GGR for the period grew by 19 per cent to £22.6m, with net gaming revenue up 20 per cent to £15.2m. Cost of sales rose 19 per cent to £10.2m, while administrative expenses increased 23 per cent to £2.8m.

With higher share option costs and depreciation and amortisation charges, operating profit amounted to £1.4m with profit for the period falling 6 per cent to £1.2m.

The company has declared an interim dividend of 1.0 pence per share, up from 0.8 pence a year ago.

32Red CEO Ed Ware said: “We are delighted to report yet another record performance with 20 per cent growth in net gaming revenues leading to a 22 per cent growth in EBITDA. It is very important to us that the quality of our service and the experience we provide to our players keeps pace with the growth in the business.”

32Red added that the second half of the year had started strongly with GGR for the first 12 weeks up by 23 per cent versus a year ago, with the company continuing to progress its growth strategy, “through increased and targeted marketing and maintaining its reputation for unrivalled customer service.”

“The board believes that 32Red has commercially viable opportunities to grow both organically and by making acquisitions in the sector,” said the company. “As the regulatory landscape continues to evolve we remain encouraged by developments in potential new markets, both in Europe and the US.

“With the strong start to the second half of the year and the recent acquisition of the UK customer database of Go Wild the board is confident in meeting its expectations for the full year.”

Analyst Numis Securities said that one of the key attractions of 32Red was that it is small enough to grow.

“This trading statement demonstrates once again that the company has the management, technology and financial resources to deliver on that potential,” said Numis’ Ivor Jones as he reiterated a Buy recommendation and 100 pence price target.

Jones maintained his view that the Gibraltar Betting and Gaming Association’s (GBGA) legal challenge against the UK government’s proposed Point of Consumption regulatory regime, which concludes later today, will success and “will be the most significant positive driver of 32Red’s share price in 2H14.”

Analyst Daniel Stewart & Company said it was confident that the company was on track to meet its full year expectations – revenue of £47.8m and EBITDA of £5.2m – and remains buyers at a target price of 95 pence.

As at June 30th the company held cash and cash equivalents of £4.9m compared to £6.3m a year ago.

Shares in 32Red plc (Co. Data) (AIM:TTR) were trading up 2.21 per cent to 55.45 pence per share in London following the announcement Wednesday.