Q4 Sweden analysis: Live casino, M & A and other talking points

By Tim Poole

It was jokingly dubbed "national Sweden day" in the Gambling Insider office, as Kambi, Evolution Gaming, NetEnt, Betsson and Kindred Group all posted their Q4 and FY trading updates within 24 hours of each other.

While each company, Swedish-based but all possessing international assets and ambitions, published varying rates of Q4 success, there were some trends and patterns which applied sector-wide.

In other cases, there were fascinating individual talking points amid the array of financial information presented to the industry.

Live casino’s stock continues to rise

An initially striking point was an obvious one: the inevitability of the sports betting calendar affecting operators like Kindred and Betsson, as Kindred CEO Henrik Tjärnström discussed the impact of lower sports betting margins.

Reflecting on Q4, he told Gambling Insider: "It’s a lot of favourites that won. When we presented our Q3 report, we had Champions League days where a lot of favourites won. That was when the period of lower margins started. So from 22 October until 11 December, the margins were much below the long-term average."

For supplier Evolution Gaming however, there was no such sporting hangover as it reported 51% revenue growth for Q4 and 49% for the full year. The supplier continues to make waves within the industry as its innovative live games storm the market. The company’s share price rose from SEK 329.50 ($34.23) at the close of play on Tuesday to SEK 374.50 following the publication of its results – and this is no outlier in what has generally been an upward trend in share valuation for the firm since it went public.

But it is not just a case of sports betting businesses suffering and casino companies thriving. NetEnt was only able to post a 1% yearly rise in annual revenue on the same day, while Betsson’s casino revenue fell by 10% for Q4. Of the live casino vertical though, CEO Therese Hillman said: "Since December, we have seen all-time highs in the number of players."

Without doubt, the stock of live casino – driven chiefly by Evolution – continues to rise unabated. While the handle and revenue it generates originates online, the replication of a land-based casino atmosphere is a key draw for players.

When will the Swedish market recover?

The troubles of the re-regulated Swedish market have been difficult to miss over the past year – especially reading the financial reports of its operators and suppliers.

Nevertheless, the publication of this latest set of results was slightly less one-sided than in previous quarters. Tjärnström was certainly more upbeat, telling Gambling Insider: "There comes a point where everyone is probably taking comfort from the recent tax numbers coming out of Sweden. We were able to show it is perfectly normal and it’s a normal development in any re-regulated market that margin pressure gradually fades away over time."

For NetEnt though, there was less optimism in this particular area. Hillman most notably commented on "continued weakness in mainly Sweden and Norway." Betsson, meanwhile, struggled considerably.

Betsson AB CEO Pontus Lindwall commented: "We had expected some recovery in the closing fourth quarter, above all in the Swedish market, but we did not reach our objectives there. Up until now, one year after the Swedish re-regulation, we have still not seen the market consolidation we expect due to the great number of operators, many of them showing no profitability."

As Tjärnström says, it is only natural companies begin to post more positive results in Sweden over time, while the removal of smaller firms also reduces competition for larger players within the market.

But, as Lindwall has reiterated, the rate of that progress is far from the quickest at present. The European Football Championships and the Olympics will be important barometers to see just how much the Swedish market can bounce back this year.

How will Kambi fare post-DraftKings?

For Kambi, there were no particularly new standout trends in the supplier’s Q4 and FY figures. The company continues to grow, continues to thrive in the US and continues to generate profit. But, considering the more recent landscape of industry M & A, there is some invisible fine print at play with Kambi’s financials here.

The business’ 2019 results essentially represent the shape and make-up of Kambi’s business while it remains partnered with DraftKings. Having announced the acquisition of rival sports betting supplier SBTech in December however, DraftKings is assumed to be parting company with Kambi at some point in the near future.

Kambi CEO Kristian Nylén is currently working towards that assumption, although speaking with Gambling Insider at ICE London, he said the provider’s US business will still grow quicker than its European arm.

He explained: "It will obviously have a large impact on our US revenue and it's obviously a big disappointment, but our overall position is still very strong. It's just starting and I'm sure that part of the business will still grow faster than the European part of our business."

There is little doubt Kambi will continue to thrive post-DraftKings. But how exactly will its financial reports look in the short term if, as Nylén freely admits, Kambi’s US revenue will be largely reduced? Are we looking at just as good a year in 2020 due to the Euros, reduced growth or perhaps even a year-on-year fall?

M & A works, but has its caveats

From NetEnt’s acquisition of Red Tiger Gaming last year – and many other recent examples of gaming consolidation – we can clearly conclude M & A, in a general sense, works.

NetEnt, for instance, was able to report 1% full-year revenue growth for 2019 and, more notably, a 10% rise in Q4 revenue.

This was thanks to significant new income from Red Tiger. But that suggests NetEnt may well have suffered a negative quarter without the aid of its new acquisition.

As Gambling Insider pointed out at the time of the deal, this boosts the overall organisation but does not address any underlying issues causing NetEnt’s lack of organic growth.

That is and certainly will continue to be the case in the short term. Naturally, longer-term synergies will benefit the NetEnt brand as well as Red Tiger itself.

But, off the back of these results, it’s clear Hillman still has work to do when it comes to NetEnt’s own products, despite the supplier’s M & A strategy deserving tremendous applause.


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