The year-end reports for the public iGaming companies in Sweden are only a few weeks out. Our impression is that the marketing will have been more aggressive than normal as almost everybody pushed it to the limit before the new regulation kicked-in on the 1st of January. What’s more interesting is what will happen in Q1 and beyond. We expect that the companies will have some sort of discussion about their impressions post-regulation in their reports.
It’s hard to get any concrete information on the performance of the iGaming companies during the first-month post the regulation. The public listed ones are obviously quiet, but some of the larger private ones are more open with sharing their thoughts. We have reached out into our industry network and talked to a couple of different operators and providers to get a feeling what the new regulatory framework has meant for their business.
Overall, we can say that Q4’18 will likely have been a record quarter, at least regarding NGR. The marketing seems to have reached new heights; which of course will dampen the margins. We get the feeling that the high spend rate has continued during the first month of 2019, likely we see a type of “land-grab” for market share as the operators battle for market position.
The most evident takeaway from our discussions is that almost everybody has seen a drop in player value in Sweden. The companies we have talked to have indicated a drop of minus 10-20% in player value compared to Q4, and in some cases, even more.
We believe that the main reasons for the player value drop are:
Conclusion and thoughts: The first few quarters will be bumpy for the operators. The marketing continues to be competitive, the tax rate increases the cost base and the lower player value likely decrease the turn-over per customer. We believe that the listed content providers will have a smaller impact as their geographic exposure to Sweden is smaller and most of them also benefit from Svenska Spel gaining traction. Obviously, they will also have to deal with the increased cost level. The impact will be felt the hardest for pure play operators with large Swedish exposure. Size and diversification will continue to be very important.
On the whole, we continue to be positive to the Online Gambling sector in the long-term. We believe that it rides on ongoing massive secular growth trends like:
But it’s evident that the current investor sentiment for the sector is low as the regulation creates uncertainty. And due to the earlier discussed reasons, we do not think the Q1 reports will help to calm down the investors. Our current belief is that there will be an overreaction in the market, and the prices of the companies might come down to very attractive levels and thus create sublime buying opportunities. The M&A activity might accelerate even further. The industry is going nowhere, and the long-term winners will be the ones who can handle the new conditions, create the best products and continue to innovate.
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