Organic growth drives 58% revenue growth for Cherry in Q3

Organic growth drives 58% revenue growth for Cherry in Q3

Wednesday, October 31, 2018 Posted by News Team
Finance
iGaming division sets new revenue record in strong third quarter performance

Sweden’s Cherry AB has reported a 58% year-on-year increase in revenue for the third quarter of the year, with the increase primarily due to organic growth of the company’s iGaming business. 

Total revenue for the three months ended September 30th rose to SEK899m (€86.4m). Organic growth accounted for 46 percentage points of the 58% year-on-year growth, with acquisitions accounting for 1 percentage point, and currency changes 12 percentage points.

By channel, Cherry’s iGaming business was the main driver of the advances reported in the quarter. iGaming revenue rose 63% to SEK732m, setting a new quarterly record for the channel, which now accounts for 81% of all group revenue. 

Deposits for customers were up 80% from the prior year, due in part to the final rounds of the FIFA World Cup and the start of the European football season, to SEK2.5bn, with 70% of deposits coming via mobile devices.

In total there were 330,024 new customer registrations across all markets and brands, and 359,997 active players during the quarter. 

Marketing investment in the iGaming business amounted to SEK227.9m, up 32%, largely as a result of increased spending around the World Cup. However, sports betting accounted for 16% of revenue, a 1 percentage point year-on-year decline, compared to casino, which accounted for 83% of the total. 

During the quarter the iGaming division, under the ComeOn brand, applied for 8 Swedish iGaming licences, while the Blitzino brand was launched for the German market, and the Polish facing PZBok also went live.

Cherry’s game development business, reported a 62% increase in revenue to SEK71.5m from Yggdrasil Gaming, with Highlight Gaming contributing an additional SEK0.1m. Yggdrasil signed 13 new customer agreements in Q3, as well as an agreement with Tippsport to move into the Czech market, and had its games certified for launch in Spain. It also launched three new slot titles, and struck a partnership with Taiwanese social gaming operator XSG.

Highlight Games, meanwhile, is preparing for an expansion drive, recruiting a number of key staff for the purpose. Cherry increased its stake in the business in Q3, and now holds 60.4% of shares in the company. 

The iGaming marketing business reported a 54% year-on-year increase in revenue to SEK68.7m, with new depositing players growing 15% to 14,397. Game Lounge is targeting growth in the US market, acquiring a number of key domains including BetNJ.com, and has filed an application with the New Jersey Division of Gaming Enforcement for an online affiliate licence.

The gaming technology division, XCaliber, saw revenue fall 29% to SEK7.4m, with the decline blamed on an updated internal agreement with one of ComeOn’s brands leading to lower sales. Cherry’s proprietary iGaming brands remain the main source of revenue for the division, accounting for SEK6.4m of the total.

Finally, the restaurant casino business reported a 12% fall in revenue to SEK35.9m, with Cherry said was due to changes to the Swedish regulatory framework, namely the market re-regulation coming in January 2019. 

Cost of sales for the quarter rose 28% to SEK177m, with total marketing expenses rising to SEK245m. The company also paid SEK115m in personnel costs during the quarter, and SEK115m on other expenses. 

This left Cherry with earnings before interest, tax, depreciation and amortisation of SEK258m, up 130% year-on-year. Once tax, interest, depreciation and amortisation were taken out, Cherry posted a post-tax profit of SEK188m in Q3, up from SEK42m in Q3 2017.

For the first nine months of 2018, Cherry reported a 42% increase in revenue to SEK2.3bn, with a post-tax profit of SEK367m.

“The second quarter of the year ended well and the positive trend in sales and gaming volumes continued throughout the third quarter,” Cherry’s interim chief executive Gunnar Lind commented. “This is mainly explained by our high level of quality and innovation, which is appreciated by our customers and by all players.”

Following the end of the quarter, Cherry has announced a number of strategic deals, with Highlight Games signing a distribution agreement with Nevada-based iGaming supplier Spin Games. This will see Spin distribute Highlight’s virtual sports products in the regulated US market. 

Yggdrasil has also agreed supply deals with AB Trav och Galopp and Svenska Spel Sport & Casino to provide games for each brand once Sweden’s re-regulated iGaming market opens in January 2019. It has also struck a deal to supply Finnish national gaming operator Veikkaus with its games. 

Finally Cherry acquired all remaining shares in the Game Lounge affiliate marketing company in October, giving it full ownership of the business.

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