Key Points
- Revenue smashed through the barrier at an all-time high of €326.5m, yet net profit was nearly cut in half to €28.2m, thanks to a massive leap in betting duties.
- Latin America was flying, up a whopping 51.8%, but Brazil’s sudden, inexplicable ban on foreign licences just days before they were set to expire isn’t going to help.
- Rhino has had a complete about face a €64.5m price tag in March, now a whopping €73.1m, and not a word from anyone about why.
Betsson’s Booming Summer Leaves Bank Balance Looking a Bit Slender
Betsson has never done as much business in a single quarter so why did nearly half of their net profit just disappear into thin air? The third-quarter results show revenue of €326.5m from July to September, which is up 10% on €295.8m. Meanwhile, net income plummeted a whopping 44% to €28.2m, and earnings per share dropped from €0.34 to a mere €0.19.
Markets were actually all set for something a bit softer. The Bloomberg average forecast that TT News Agency picked up on was for €314.1m in revenue and €45.3m in EBIT. Betsson actually managed to beat those but their EBIT of €46.1m was still 31% lower than last year.
Taxes Devour Most of Those Extra Euros
The story is written in the numbers, rather than any high-profile headlines. Gross margin fell to 55.5%, down 8.7% from 64.2%, and the gross profit shrank to €181.1m despite higher sales. Betting duties, the local consumption taxes, just about doubled in a year, to an eye-watering €69.4m from €41.4m.
Locally regulated markets are now churning out 77.7% of revenue, up from 63.8%. Betsson’s Lindwall told iGB they have become a lower-margin company, as they are now heavily dependent on Latin America: “You see we are now growing a lot in Latin America, in a couple of regulated B2C markets. Those come with a different cost structure and, most importantly, a different tax structure.”
It all adds up to a rough ride: they picked up about €31m in revenue but their costs shot up from €39m to €145.4m. Personnel costs only went up a teeny bit, to €49.8m from €48.5m, as employee numbers went up.
Corporate tax is a bit harder too. Betsson had to set aside €12.7m in tax expenses, which was equal to 31.1% of pre-tax income, a whole 8.8% higher than last year. Cash taxes however were down significantly to €7.2m in the quarter.
Casino Steps in to Save the Day, as the Sportsbook Falters
Casino revenue has risen a respectable 14% to €253.5m and is now churning out 77% of group revenue; this actually helps explain why the record feels so hollow. Sportsbook revenue went up a paltry 1% to €71.8m, but with a margin of just 8.1%, which is the lowest we’ve seen in eight quarters, as football results played right into the hands of the bettors.
It’s a pretty stark contrast when you look at the second quarter sportsbook revenue dropped an alarming 21% after a nice 10.5% margin in Q2, while casino revenue leapt 16%. On the Q3 earnings call, Lindwall had a simple explanation for the swing: “Some of that money from some customers just gets funnelled over to the casino somehow.”
Latin America Supports Group Growth As Europe Splinters
Latin America is now Betsson’s biggest region with 36% of revenue. Sales in that area climbed 51.8% to €116.1m, with growth fuelled by Argentina, Peru, and Colombia. Spend on marketing jumped to €41.6m from €34.4m, mostly thanks to campaigns run in that region.
Over the course of the World Cup, according to Betsson, the company has serviced more than 800,000 customers who placed 20 million bets. Most of them were already existing players, but the challenge now lies in retaining the new clients. Lindwall noted that “not all customers that came in will continue to be customers forever.”
Europe painted a contrasting picture. Western Europe posted its highest-ever sales of €64.8m, a rise of 13.8%. Italy reported its best quarter ever. In contrast, Belgium shrank, despite the transition from the betFIRST brand to Betsson one. CEECA declined 16.8% to €99.2m due to falling B2B revenue, while the Nordics dropped 10% to €32.7m.
Brazil’s Ban to Test Betsson’s Prudence
On September 25, Brazilian president Lula signed into effect a provisional measure that prohibits fixed-odds gambling in Brazil. This applies to sports betting and online casinos. Gamblers have till October 5 to make any withdrawals, while operators will not get refunds for their licensing fee.
The measure should be passed by Congress within 120 days, but constitutional actions against it have already been filed with Brazil’s Federal Supreme Court. If the measure is neither suspended nor amended, all licences will expire on October 25. The local subsidiary of Betsson has stopped accepting new registrations, deposits, advertising and sponsoring.
What amount of revenue is at stake remains unknown since the report does not mention Brazil figures. According to Lindwall, who was talking to iGB, Betsson invested modestly in Brazil, and this prohibition “is a shocking decision”. He continued that “no country has managed to shut down internet gaming and got away with it.”
A Canadian Deal That Doesn’t Add Up
In early August, Betsson closed the sale of Rhino Entertainment’s Canadian business, a bit of a mystery purchase with Ontario operations and some fancy B2B tech to boot. We’re told in March that the deal was worth around €64.5m at least, that’s what the European Gaming report breakdown says. Fast forward to the Q3 report and now we’re being told it’s a whopping €73.1m but on a cash and debt-free basis this time.
It seems Betsson has already laid out €65.3m, and unsurprisingly €47.8m of that is being written off as goodwill. But here’s the odd bit no one’s really explained why there are two different prices floating around. Those in the know might not be expecting a detailed breakdown, but it’s still a bit murky.
Rhino is still churning out some decent numbers, adding €12.8m of revenue in two short months and in the process, lifting Rest of World sales by 106%. This saw the revenue boost to €13.7m.
Net cash levels have taken a bit of a hit, down from €220.0m to €98.3m. Just to keep things in perspective, Betsson has access to a €75m credit facility that’s yet to be tapped. But Lindwall is not one to be underestimated; he’s already talking up the potential for a bigger deal to come.
Betsson’s Made Quite a Trip Since 2022
When Betsson set its Q3 revenue expectations at €199m to €201m back in October 2022, it seemed like a bold move albeit a record one. Fast forward to today, and it’s clear they’ve come further than they thought with revenue more than 60% higher than that initial forecast. Do the EBIT numbers follow a similar trajectory? Sadly not, they’re only a fifth above the original forecast.
A year ago, Q3 revenue was €295.8m and it was Italy and Latin America that were driving the growth at the time. You would think things might be a bit more stable now, but nine months in, the numbers are painting a different picture. Revenue is up 3% to €922.1m, but EBIT has taken a pretty big hit down 39% to €122.3m.
October Looks Promising, But Also A Bit Wobbly
Coming into October, the average daily revenue was an impressive 11.0% higher compared to the same period last year. Leave out the currency and acquisition effects and it’s still a respectable 9.4% increase. Betsson’s keen to stress that this is just an early indication of things to come, and not a definitive revenue forecast for the quarter.
But here’s the thing that sportsbook margin was way off from its eight-quarter average so a profit rebound is far from a done deal. Not to mention there’s the ever-shifting regulatory landscape to contend with. The proposed EU-wide 3% levy in the 2028 to 2034 budget could raise a whopping €1.9bn a year depending on whether it gets unanimous approval, and if Malta doesn’t veto it.
Expert Analysis: A Record Revenue, But At What Cost?
We reckon that Betsson’s buying growth, but at a pretty steep price. And when asked about the record tax bill, Lindwall just shrugged and said “That’s no news to us”. To be fair, we do think the word “diversified” deserves a bit of a hard look, and it’s not just the geography that’s the problem, it’s also the products. The casino now brings in 77% of revenue, with some of that rise coming from bettor friendly football results. Geography-wise, it’s a bit more spread out, yet Latin America alone now accounts for more than a third of sales.
Brazil shows how quickly a regulated market can shut down and Lindwall believes it will reopen at some point. It’s a fair bet, but it’s still a bit of a gamble on politics.
Credit to Betsson though, they’ve managed to boost EBIT by 9% compared to Q2, and October started strongly. Lindwall told iGB they’ve increased EBIT sequentially, and that has to count for something. Still, investors are going to need a bit more convincing. The shares are still hovering around 95 SEK on 22 October, having taken a 35% hit this year.
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