LeoVegas to learn lessons from huge marketing investment

LeoVegas to learn lessons from huge marketing investment

Thursday, August 11, 2016 Posted by Andy McCarron
The launch of its sportsbook opened up new marketing opportunities to LeoVegas

Newly-listed LeoVegas, which floated on the Nasdaq First North Premier in Stockholm in March, issued second-quarter results this week which showed the true cost in terms of marketing expense of keeping pace with the opposition.

The top-line figures for the three months to June were impressive enough. Total revenues grew 67% to €31m with customer deposits increasing 79% and the number of depositing customers soaring 147% to 176,635. Of those deposits, 65% came via the mobile channel. The rise in the total number of new depositing customers was even more stratospheric – up 235% to 109,718 – while the number of actives (which includes players which only played using bonus money) rose 193% to 540,276.

These double and triple digit rises in key metrics came at a cost though. Specifically, the marketing spend for the quarter came in at €18.7m or a whopping 60% of total revenues. A touch cryptically, chief executive and co-founder Gustaf Hagman said in the results statement that the “marketing potential turned out to be greater than we expected”.

LeoVegas recently launched its sportsbook operation in time for the European Championships and the company said a “competitive welcome offer” meant that bonus costs increased more than expected. At the same time, the company also gave a renewed push for its live casino offering, with new suppliers and games, helping that segment grow 48% quarter-on-quarter.

The percentage spent on spending is set to decline in the second half of the year, with the company saying that a return to “more normal customer growth” in the third quarter.

Going into greater detail on the marketing spend, we get a clearer picture of a company getting to grips with the marketing metrics of a new product. Part of the increase, the company admitted, was due to the company “testing and evaluating new marketing concepts for the first time”.

The company added: “A number of these investments during the quarter contributed to more new customers than expected, but in some cases with relatively low deposits and high bonus costs. Analysis of each channel forms the basis for effectively optimising new customer acquisition.”

The marketing splurge tipped the company to an EBITDA loss of €2.5m with EBITDA margin plunging into negative territory at minus 7.9%. Also contributing to the rising costs, however, was an unexpected rise in personnel costs which the company said rose at a faster pace than revenues during the quarter as a result of a large number of new hires related to the sports-betting launch.

The new product push was also matched by an effort to bring in customers from new geographies. Previously a largely Scandinavian-focused business, the company saw its Nordic growth rate of 52% outstripped by growth of 97% in the UK, a quadrupling increase in business emanating from the rest of Europe and a tripling from the rest of the world (which is likely Asia).

Of all deposits, the Nordic region accounted for 48.5%; UK was 21%, rest of Europe represented 18.5% and the rest of the world accounted for the remainder (12%). The changes in the regional splits are yet to feed through to the net gaming revenue splits where the Nordic region is worth 62%, the UK 13%, test of Europe (13%) and rest of the world (12%).

In the presentation accompanying the results the company said the UK percentage of NGR had fallen back from 18% of the total to 13% due to a low gaming margin in the second quarter in combination with high bonus costs associated with the cost of acquisition in both sports and casino. 

Totally Gaming Says: Launching a brand new vertical as LeoVegas has done in its sportsbook this year is not a very frequent occurrence so it is understandable that the operator has invested so much in marketing the product, especially ahead of the ultra-competitive, yet new customer goldmine, of the European Championships. The key for the company now is to act on what they have learned and be more efficient going forward.

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