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Earnings growth returns despite marketing spending

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Zeal Network has absorbed an increase in marketing costs to achieve a growth in income and profits in the first nine month of the year.

Zeal, a provider of online lottery products, increased its marketing costs 27%, to EUR30.7m, during the period ending 30 September. The Eurojackpot draw and Lotto 6aus49 jackpots reaching their maximum five times prompted Zeal to increase marketing costs by 27%.

While outgoings increased, the Germany-headquartered business remained on track to hit financial targets for 2023 as it significantly increased billings and revenue. The nine-month marketing campaign also led to the addition of 518,000 customers.

Zeal’s revenue grew 16% in the first nine-months of 2023, largely due to a strong third quarter. Similarly, revenues also increased 16% from EUR86.0m to EUR633.2m. Gross margin for the group was 12.5%, which is close to last year’s 12.8%.

Zeal has also received EUR1.2m in revenue from the launch of its online gaming platform, which will be launched in June 2023. Zeal offers 28 new games across the Lotto24, Tipp24 and Zeal platforms.

Zeal’s profits boosted by successful campaign

EBITDA grew by 5%, even after Zeal increased its marketing investment to EUR23.2m. After Q3, the growth was notable, as marketing costs had caused a drop in earnings of 15% after Q2.

The EBIT for this period was EUR16.7m, while the post-tax result fell from EUR12.1m to EUR10.1m. The company said that this was due to an EUR1.1m drop in financial results and significant increases in tax costs compared with the prior year.

The acquisition cost per new registered customer increased 27% on the year to EUR46.81, mainly due to an increase in marketing costs and brand building through TV advertisements.

Personnel costs increased by 9%, to EUR15.2m. Zeal attributed this to hiring additional staff in order to develop and support the growth of new products. Zeal increased its average employee count from 159 employees to 170.

Although billings grew by 16 %, direct operating costs increased only 11% due to one-off expenses relating to setting up lottery clubs the year before. Direct operating costs increased by 8%. It said that this was due to the costs of strategic technical projects, legal fees, software and litigation provisions.

Sebastian Bielski said that the company was benefiting from strategic choices made by its chief financial officer, appointed in August.

He said that the strong growth of our revenue and billings proves our continued market leadership.

The first numbers for Zeal’s online gaming business show the company made the right choice to start this line of business. We are confident of further growth due to our growing and attractive games.

On track for targets with zeal

Zeal has stated that it will continue to work to increase its online lottery product market share and to introduce additional products including online games.

Zeal expects to generate billings for the Germany segment (excluding the games), in the EUR800m – EUR830m range, assumant an average jackpot growth.

Zeal also continues to estimate that the revenue for 2023 will range between EUR110m and EUR120m. EBITDA will range between EUR30m and EUR35m, according to Zeal.

Zeal said: “The Company continues to expect that it will invest substantially more than the prior year in terms of new customer acquisition and marketing expenses are expected to range between EUR34m-EUR39m.”

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