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Welcome to the Raketech Q4 2023 Report Presentation. For the first part of the presentation, participants will be in listen only mode. [Operator Instructions] Now I will hand the conference over to the speakers, Acting CEO, Johan Svensson, and CFO, MĂĄns Svalborn. Please go ahead.
Good morning, and welcome. My name is Johan Svensson, and I'm the Acting CEO of Raketech. Today, CFO, MĂĄns Svalborn, and I are here to present Raketech's Q4 2023 and end of year report.
For those who do know me, I'm one of the co-founders of Raketech and was the CEO prior to the IPO in 2018. After IPO, I have continued to work full time on Raketech in different roles. The last 2 years, I've been CCO. I'm excited and looking forward to this new role.
Moving slide. We start with our Q4 financials. To begin with, we are pleased to conclude that we have present and end of year in line with our previous guidance.
Raketech delivered EUR 22.8 million in revenues in Q4, representing an organic growth of 45.3%. Sub-affiliation continued to be a strong contributor to our organic growth. Full year's revenues amounted to EUR 77.7 million. And the EBITDA in Q4 landed EUR 6 million and for the full year at EUR 23.6 million.
Now let's look at our different business areas. I will change slide.
We will start with affiliation marketing. Affiliation Marketing, our in-house owned assets, slowed down somewhat during Q4 with revenues of EUR 9.7 million compared to EUR 10.3 million in Q4 2022. This is primarily an effect of softer-performing casino assets in Sweden, together with a weaker Swedish krona, which has had a negative impact on our Swedish revenue. Furthermore, the fourth quarter 2022 had a positive impact from the FIFA World Cup. Our other largest assets outside Sweden, including [ BetXpert ] assets are performing according to plan.
Sub-affiliation. Sub-affiliation revenue grew from EUR 3.5 million in Q4 '22 to EUR 11.4 million in Q4 '23, fantastic growth, but lower margin compared to affiliation marketing. Sub-affiliation consists of 2 products: Raketech Network and AffiliationCloud. Raketech Network, which is a platform for paid traffic publishers, continued to deliver significant growth during the quarter. Our in-house developed platform, AffiliationCloud, focusing on organic traffic, grow quarter-by-quarter, but still on low levels compared to the network.
Moving on to betting tips and subscription, our U.S. tips business picked up during the fourth quarter, but was slightly behind the last quarter of 2022. We still haven't seen any positive effects from organizational changes we implemented during the quarter. The initial strategy to add Affiliation Marketing on our Tipster asset has not delivered in line with expectations, but we have started to see some positive indications during the fourth quarter.
Going to the next slide, our plan for 2024, when it comes to Affiliation Marketing, we will review our strategy to secure long-term organic growth. This strategic exercise will include an analysis of our operating model of markets to prioritize and how we best allocate the capital. Furthermore, we have started with a performance exercise of the entire product portfolio to optimize cash flow and to improve operational efficiency.
The plan for sub-affiliation is to continue to build on the good momentum within the network business. We will expand to new markets, including U.S., and we will onboard more publishers.
The development of the AffiliationCloud platform has taken a longer time than expected. However, we continue to see very strong demand for the product. The focus during the first half of the year will be to continue to develop a platform and then to start onboard more partners and increase sales volume during the second half of the year. The previous communicated revenue goal of EUR 10 million in run rate by end of 2024 is still achievable, but has been pushed forward to first half of 2025.
Betting tips and subscription. We have secured a key competency in the U.S. organization to focus on digitizing our U.S. Tipster business with the goal of improving our online conversions and sales. To capitalize on the efficiencies from these initiatives, we have restructured and rightsized the U.S. organization.
Additionally, in Q4 2023, we saw positive indications from our targeted affiliate campaigns on the U.S. Tipster assets. We will scale up these campaigns in 2024 to add more revenue streams to the Tipster assets.
Now over to our CFO, MĂĄns Svalborn.
Thank you, Johan. We are pleased to see that total revenues are at an all-time high yet again for the sixth consecutive quarter in a row.
On the left-hand side and similar to Q3, we saw significant growth for sub-affiliation, which represents 50% of total revenues. The revenue growth is primarily driven by our paid sub-affiliation area network, where we saw continued good traction from existing and new partners. The growth here is an effect of increased sales efforts where our partners have seen good success from Raketech's operational infrastructure and extensive commercial network. Also, similar to Q3, we saw continued strong performance in LatAm and the Nordics.
Affiliation Marketing, our core business area, was up from Q3, as expected, but we did see somewhat of a softer development versus Q4 of last year. This relates primarily to our main assets in Sweden. We do see somewhat of a decreased activity from operators, which can vary over time, as well as a sweeter stake that impacts revenue, but also site-specific performance-related effects, something that Johan highlighted and that we are addressing at the moment. Our other larger assets in other markets, including Casumba, show stable performance.
On the right-hand side, and a quick note on our revenue mix for revenue share, CPA and flat fees, in absolute terms, we are growing revenue share, which is good. And with regards to the significant increase of CPA, this relates primarily to our sub-affiliation area, which predominantly is CPA driven. Worth mentioning, though, is that we are pushing rev share components even within this area.
As for the regional split and starting with the Nordics, the substantial growth is predominantly driven by sub-affiliation, which pushed revenues in this region to EUR 10.6 million, which is 46% of total revenues in Q4. Similar to previous quarters, we saw a significant share of revenues from Rest of World, again, driven by sub-affiliation and also in line with previous quarters. Casumba continued to perform well.
The vertical split on the right-hand side shows both casino and sports revenues growing from last year with 81% of total revenues in Q4 relating to casino. The largest shifts we have seen within the verticals is driven by the significant growth, again, in sub-affiliation. As I've mentioned before, sub-affiliation revenues, specifically network sales and its contribution to either sports or casino revenues, will vary between the quarter as it depends on which markets and publisher grow in each respective quarter.
EBITDA is up in Q4 at EUR 6 million versus EUR 5.6 million in Q3. This is as expected with Q4 being high season, both from a casino perspective, but also U.S. sports. We are, as we have mentioned, slightly down from last year.
Very much in line with Q3, the overall margin is lower. This is as expected as well, and as we've highlighted previously, an effect of sub-affiliation increasing its share of total revenues to the group now at 50%. This area has a lower financial risk and adds a healthy mix to our business.
The gross margin was at around 15% in the quarter. And as such, we're happy to see that it represents a reasonably large contributor to EBITDA in absolute terms for the group.
On the right-hand side, there is an illustration of our free cash flow. Free cash flow for the full year did come in in line with our guidance at EUR 14 million. This is a substantial increase from last year. And in Q4, we're getting close to having free cash on par with EBITDA. The difference is primarily an effect of an earn-out payment we settled during the quarter as well as CapEx related to development of AffiliationCloud and interest expense paid on our facility with Avida. But again, it's good to see a high level of cash coming in.
As a last point on this slide, and I highlighted this last quarter as well, despite a year of record cash flow and EBITDA, our net profit and EPS decreased during the year and also the quarter. This is simply an effect of increased amortization and finance costs related to adjustments to our intangible assets relating primarily to Casumba. These items are noncash affecting items and do not impact our free cash flow, as illustrated on this slide, and it's more of a technical accounting effect more than anything else.
Casumba is our last remaining material earnout. It's been a very successful acquisition for us with high margin and high growth. I presented this slide last quarter as well, and it's very similar. We highlighted that we would not expect to see any significant revisions of the earnout in the last quarter, which we did not. And we can now conclude that, out of the EUR 46 million in total, EUR 41 million is now fixed. The remaining smaller amount that runs up until July 24 is a profit share structure, which means it's cash flow positive for the group.
On the left-hand side, there's an illustration of our current free cash flow before estimated upcoming earn-out settlements. This is represented by the dotted line on top. And as illustrated by the arrows, there's quite a lot of headroom in relation to current levels of cash flow, which means that we have financial flexibility in the business as we move along. The payment terms are flexible and can be settled in installments up until September 26. Also worth mentioning is that we do have the option of settling part of the earnout in shares, if we so wish. And since there is a lot of flexibility with regards to timing on settlement, but also flexibility on timing for the option of settling with shares, this will be an evaluation by the Board as we progress, depending on what makes best sense from all aspects considered.
As a last point, we are very happy that the founders of Casumba are committed to staying on board with overseeing the portfolio of sites, but more importantly, assist Raketech in other growth projects. Thank you, and over to you, Johan.
Thank you, Mans. To conclude, 2023 performance was in line with previous guidance. Going forward, my objectives are clear, to deliver long-term organic growth and increase profitability via improved operational efficiency and capital allocation. Looking at January, revenues amounted to EUR 7.3 million with a strong performance from sub-affiliation.
Guidance for 2024. We have now shared our guidance for 2024 with an estimated EBITDA of EUR 24 million to EUR 26 million and a free cash flow of EUR 22 million to EUR 24 million. This is before the Casumba earnout of EUR 18.3 million.
With this work, we now open up for Q&A.
[Operator Instructions] The next question comes from Hjalmar Ahlberg from Redeye.
I'm going to start with a question on the trading update here for January, which looks pretty solid and consistent with the performance in the last few quarters. But can you give any flavor? I mean, you did mention sub-affiliation growth, but anything else impacting there in terms of regional mix or anything that's going to be worth mentioning?
Hjalmar, so we won't give any more details with regards to the January trading update. It is, again, primarily organically, from our perspective, driven by the sub-affiliation, but more in from that, we'll have to wait until we release the Q1 reports.
All right. And in terms of your full year guidance for EBITDA, can you give any information on what could, I mean, move you to the lower end of the guidance or the higher end of the guidance? What are the moving parts in that range?
Yes, that's details we won't go into either, to be honest. What we can say is that we do expect a continued sort of strong contribution from sub-affiliation. We will be looking, as Johan mentioned, into cost efficiency measures as well. And we'll try to be a little bit more focused on investment when it comes to organic growth within Affiliation Marketing. But more than that, we'll have to get back to you with regards to the full year update for guidance.
All right. And this efficiency program, so to say, are there specific areas where you see upside? I mean, you mentioned the U.S. there, for example. And is there any, I mean, costs for that program? Or is that maybe no increase in costs for that?
So this is ongoing, something that we have started now in Q1. The goal, obviously, is to achieve efficiency and primarily perhaps operational efficiency. So, when it comes to numbers and assessment around that, we'll have to get back to you as well a little bit further on down the road.
And on U.S., I mean, you did mention that you continued to work to increase affiliation revenue and you're looking to maybe seeing that in next year during the NFL season. I mean, how confident are you that you will realize this this year or later this year? What are the [ rates ] that you want to do, I would say?
Regarding the affiliate revenue in the U.S., we're confident in the new team running this targeted affiliate campaigns. But yes, the competition is tough in the U.S., as in all large regulated markets. But yes, we're confident in the team.
And in terms of revenue mix, I guess you won't guide on that, but just if you can give some more flavor maybe on how to view sub-affiliation variation. I mean you have 2 quarters with pretty stable revenue, I would say, in sub-affiliation on a high level. What kind of range could we see that drop down, like 20%, 30% in a quarter? Or can you give any information on that, maybe?
No. Sorry, not -- we won't. It will be -- I was anticipating that question, perhaps, but we -- it is an area of focus for us. So, I can say that much. But the mix we won't comment on. But it is a focus area for us, definitely, in the coming years still.
Rikard from Carnegie here.
The next question comes from Rikard Engberg from Carnegie Investment Bank.
I have 2 questions, if I may. And the first one is regarding the seasonal effects of the year. Do you think that the euros this year will give you a significant uptick in revenue, given increased activity within the industry?
Compared to Q2, Q3 last year, the euro is...
Yes. Yes, exactly. Yes.
Yes, the spot revenue will have a significant boost in general, when it's a year of World Cup during June and July. So, yes, we see a revenue boost coming for Europe, yes.
And also, if you can give some details on AffiliationCloud, how it's been received by the customers that have signed it during the quarter?
Yes. AffiliationCloud, the development of a platform has taken a bit longer than expected. However, we continue to see a very strong demand for the product, and we have chosen to not onboarding too many new operators and publishers on the platform until we're -- yes, until we're done with the vision of the platform, which we expect to be here during the first half of the year.
And then, during the second half of the year, we expect to onboard more partners and increase the sales volumes. And therefore, we have -- we pushed forward a previously communicated revenue goal of EUR 10 million in run rate by the end of this year until first half of next year.
[Operator Instructions] There are no more questions at this time, so I hand the conference back to the speakers for any written questions for closing comments.
Okay. Then we'd like to thank you all for listening in, and we welcome you back for our Q1 report in May.