XL Media super sizes its profits

XL Media super sizes its profits

Wednesday, September 28, 2016 Posted by Andy McCarron
CEO Ory Weihs sees huge publishing profit growth

The chief executive at XL Media didn’t rule out further acquisition activity in the rapidly corporatising affiliate space as the UK-listed company saw revenues top £51m on the back of high double-digit organic growth.

XL Media saw gross profits outpace revenues, rising 47% to $27m. Adjusted EBITDA was also up 37% to $17.7m. Profit margins across the business hit over 50% while in the publishing division they rose three percentage points to 83% in the first half.

Speaking to TotallyGaming.com, Ory Weihs pointed out his company was the biggest and the first of the affiliate consolidators. “But I think the essential difference is that we’ve been growing organically, not necessarily through acquisition,” he said.

He added that the company has been selective with regards to affiliate-related M&A to date. Back in July 2014 the company purchased a leading Scandinavian-facing affiliate network for $2.3m, following that up with a UK-facing sports-betting affiliate website in August 2014 and buying an additional slug of a Finnish-facing site the next month. A bolt-on acquisition was announced in May last year.

Weihs said he wasn’t surprised to see other companies such as the Stockholm-listed Catena Media attempting to mimic the XL Media’s affiliate marketing footprint. But he was keen to point to the difference in approach. “I think Catena Media is more of a ‘roll-up’ strategy,” he said. “It is a more aggressive M&A strategy than ours.”

He said XL Media was interested in further opportunities as long as the quality of earnings was evident, but he cautioned against affiliates upping their buyout price because of the increased corporate activity. “A lot of the affiliates are certainly sitting up and taking notice, thinking perhaps they will be bought,” he said. “Maybe some expectations have been raised a bit too high.”

Talking about Paysafe’s recent C$40m deal for Income Access, Weihs said it was more about consolidation in the supply world. “There are not a lot of other companies in that space,” he said, giving mention to NetRefer.

XL Media’s results showed revenues at the publishing division, comprising XL Media’s thousands of affiliate sites, rising 48% to $21.3m due primarily to organic growth, though with some help from the acquired assets. The company said it had invested $1.6m in new websites and domains over the first six months of the year.

It’s media-buying operations also grew significantly, up 39% to $24.2m and it remains the largest segment of XL Media’s earnings. The company said it was focused on a performance-based revenue model, avoiding applying funds to media campaigns that didn’t deliver adequate ROI.

XL warned that it anticipated a decline in revenues in its media segment, though Weihs said the decline was unrelated to its gambling sector deals.

The smallest segment of XL Media’s revenue comes from its partnership network where again the company said it expected an impact on profits from a current review on the business. XL is in the process of trimming its partner network to concentrate on quality offerings.

Weihs said a common misunderstanding among investors was believing that XL Media was an adtech business reliant on selling access to an ad-serving platform. “We’re not an adtech company because we are a user of adtech,” he said. “Our goal is to drive high-value users. I’m selling users to my clients. The media platform itself is not something I trade. For us, adtech is a tool. It’s not the goal itself. I will buy programmatic videos, for instance, but I will also buy a banner on the most awful-looking website if the ROI is there.”

He added that XL’s gambling operator clients – which include such names as 888, bet365, Betsson, Ladbrokes and William Hill – are buying users from XL. “But I don’t own the users,” he added. “I own the road they walk on.”

Totally Gaming says: There was a degree of scepticism regarding XL Media when it first floated in March 2014 but the revenue numbers are proof that it does what it does very well. Within the context of an affiliate space which, as suggested, is growing increasingly more corporate, it has a model which is worth paying attention to.

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