Media and affiliate giant Catena Media plc reported a revenue drop of 41% in the full year 2023. But can it recover to its former glory.
Catena Media updated its financial goals for the period 2024-2026. Michael Daly, Catena Media’s CEO, did not sugarcoat the performance of affiliates in 2023.
Daly stated that the end of the year, compared to their optimistic outlook at the beginning of 2023 was “disappointing”.
Catena began the year in a positive way. After a 24 percent increase in revenues from North American operations, the company started off with a net profit.
Its US launch happened in a whirlwind. It was launched in 2023 across multiple US States, including New York and Louisiana.
The outlook for 2023 was bright, with big plans in the works, based on the new strategic focus of the group, and a strong emphasis placed on North America.
Daly stated at the beginning of 2023 that “full-exploiting the high margin opportunities in this market” would be the core focus for our operations going forward.
The company seemed to bet everything on the red, white and Blue. The American Dream ™ was certainly a high-flying dream.
Bet big on US
This is the reality. At this stage, the company’s revenue is heavily dependent upon US sales. This accounts for over 80% of its total income.
In announcing the results for its year-end, North American revenues fell 21%, to EUR67,1m (PS57,1m/$71,9m). The share price has fallen by more than 75% in total.
If we break that down by quarter, the Q4 result showed a rapid decline in North America with revenues plummeting to EUR12.3m, a drop of 43.0%.
Looking back, we can now see that this trend has compounded further. We saw a gradual decrease of 29% in Q3 followed by a drop of 16% in Q2.
Catena, having placed a large bet on 27 North American jurisdictions and being in the position that more than 80% its revenues are on the opposite side of the Atlantic has put all their eggs into one basket. This basket is strained.
It is clear that something must be done to arrest this rapid decline. An annual decline of 75% in the share price is a cause for alarm.
Let’s first take a look at some key numbers. Let’s start by looking at the Q4 results, and then move on to the entire financial year.
Q4 2023: Accelerating decline
The revenue for continuing operations decreased by 41%, reflecting the poor performance in the US.
The decline was due to the 43% decrease in new customers from ongoing operations, which totaled 32,032 compared with 56,040 during the prior quarter.
The adjusted EBITDA for continuing operations fell by 88%, to EUR1.5m. This corresponds to a 10% margin on the adjusted EBITDA.
Earnings per share for continuing operations were -EUR0.47, before dilution.
FY2023: Grim reading
Catena is currently down over 10% in the Swedish Stock Exchange.
To put it mildly, this suggests that the market is not overjoyed with news from 2018. This is especially true when it adds up to a drop of 75% year-on-year.
If we take a look at annual financials we will be able to get a better idea of the magnitude of this decline.
The total revenue of the company is 22% lower than last year. At EUR76.7m the US revenue has fallen by 21.0%. This is offset by the less dramatic decline in the second half of the year.
The number of new depositors from ongoing operations was 184,257. This is a 19% decrease, again cushioned (less badly) by Q1 and Q2.
EBITDA, however, is the place where things start to look bleak. Adjusted EBITDA for continuing operations has decreased 47.0% from EUR25.4m to EUR25.4m. This corresponds to an EBITDA adjusted margin of 33.0%.
The earnings per share for continuing operations was slightly higher than Q4’s drop. It only had a EUR0.37 before dilution loss, as opposed to Q4’s -EUR0.47. This reflects a steepening curve.
What is more disappointing or catastrophic?
When you talk to Daly about his words, “disappointing”, it seems like he’s using a more modest word. We might prefer the term “disasterous”, again, when we look at the share price drop of 75%.
Matuesz Juroszek is the founder of STS and he has put it better than anyone else. He stated in a LinkedIn posting that he thought the management of Catena Media should step down today, and all assets should be put on sale. What a tale of how to ruin a company.
What’s your explanation? Daly’s headline comment on the performance of Q4 highlights “market headwinds” which he did not elaborate further. Its core North American markets saw revenue and EBITDA drop.
He continued, “Stiffer competition against us and lower cost-per acquisition (CPA), rates that operators paid also affected revenue.”
Catena had high expectations for North America by 2023. The company announced that they were preparing to launch sports betting in North Carolina 2024. It revealed in January that the company had seen record revenues from its launch of sports gambling in Ohio.
He is always optimistic and highlights the fact that Catena’s most recent series of investments will redefine the core technology focus of the group. These are planned in response to the strategic review, launched in 2022.
He says that the company will offer products with a focus on technology, innovation, and immersive experiences for users.
He hopes for greater stability and draws attention to the cost-reduction programme worth EUR 4,0 million to “optimise operations of the group” after recent divestments. These included UK and Australian sports online brands being sold to Moneta Communications in August 2023 for EUR 6,0m.
But divestment will improve the margin underneath rather than increase revenue. It is still hoped, however, that the rebalancing and sustainable will provide greater stability in time.
Daly points out that a short-term disadvantage of converting from CPA to revenue sharing is the reduction in upfront income. This hasn’t happened at a rapid pace.
Daly said in Catena’s analyst call today that they can expect “potentially” a spike when the service goes live in North Carolina. The risk, however, is that it feels like the return of the manifesto from the beginning of 2023.
Daly’s main message is to be patient. The strategic reboot that we are undertaking can be time-consuming and will test both the patience and commitment of our employees and investors.
“The fourth quarter was difficult, but now I think we’re turning a corner. Today, I want to let you know that we are getting closer to our goals. “A leaner and nimbler multi-channel Catena Media, with knowledge and technical infrastructure, will thrive in our core markets, and deliver a growth return in the second part of this year.”
Investments in AI, paid media and subaffiliation are the primary initiatives. It expects that this will increase its reach to audiences and provide greater value for partners. It is aiming to become the leader of data and technology in its field.
We also have to take into account the stock that Better Collective owns in Catena Media. The stock was purchased at the beginning of 2023 and at almost the same time as our story of woe began.
Erik Edeen (interim CFO of Catena) explained that the increase in competition is largely responsible for this year’s poor performance.
What is the competition about? Start with Better Collective. Oddly, those who hold stock are also the same people. They are in great health, despite their loss on Catena.
They have exceeded their revenue targets for the full year three times, most recently in February 2024. Better Collective has also raised its forecast twice in the past, both times being 2023.
It also acquired the US-based creator of sports content Playmaker HQ for $54m in July 2023.
Better Collective acquired Playmaker Capital, a digital sports media company based in Toronto, Canada, as well at the beginning of February. The deal was struck to buy the company in November 2023 for EUR176m.
What does this mean for Catena, then? It’s basically all about the shareholder vote. Catena will now need to get the approval of their rival, as they hold 6.23%.
They will also give their competition advance notice of any plans they have. This makes the picture much bleaker, especially when revenue is so urgently needed to be turned around.
Let’s go back to the company that is in danger. Catena announced that it would transition to a sustainable revenue model.
They hope the conclusion of the strategic review is their shining knight. Review ended last November.
The group anticipates that organic growth will resume in the second quarter of 2024. The group also targets a year-end adjusted EBITDA of EUR20m to EUR30m.
For 2025-2026, the new group-level targets include double-digit growth both in revenue and EBITDA adjusted. In order to shift the revenue model towards one that is more sustainable, more players will be recruited via revenue-sharing agreements with operators.
We’ve already discussed that this contract replaces the previous CPA contracts. However, we haven’t seen any concrete evidence of its effectiveness.
We’ll discuss this next. The second is the way it plans to implement an extensive programme of investments in technology and data innovations.
The company plans to launch a brand new platform between Q1 2024 and Q2 2020 – in other words, it is betting heavily on AI.
AI is the new buzzword
Catena believes that channeling its resources towards AI will allow it to turn its fortunes around.
Daly stated that “rapid technological development and artificial intelligence are changing the media industry.”
The changes in the sector of online casino and sports betting will be massive. Catena Media is determined to lead this industry.
Catena has a large-scale internal investment program, including big investments in tech and AI. A minimum viable product is already underway.
What is it? Daly says that his company plans to “fast-track its ambition to become the data- and technology-driven leaders of online affiliate advertising.”
These projects are important in light of the Q4 results, which have been disappointing. I’m not happy with them. The investments were planned and started earlier in 2023. They have been increased since then. The investments are intended to prepare us for future growth and to return the group to sustainable, long-term growth.
The new platform is expected to facilitate new tools for improving its “organic Search Competence”. The new platform will “better allow us to leverage our data and innovation in product development”.
The new platform, which is built for scale, will allow “fast” implementations in multiple fields, such as AI and subaffiliation. This content will most likely be similar to the ChatGPT-styled material that is already being used by media outlets. It would allow them to produce content much faster than they could with a human writer.
According to today’s information, the platform will launch during Q1 of 2024. When fully implemented in Q2, Catena Media will focus its affiliation activities for the first time on one, cohesive tech infrastructure.
Does it Work?
Catena, while not being the first to place its hope in AI, has plans that will bring about big changes.
Daly stated, “We view AI as a force for good that empowers our teams to leverage their expertise and create better products. This will lead to higher revenues and better-looking products over time.”
The new platform will allow us to quickly integrate AI models and large-scale language models into the business.
The same is true for paid media. This new, relatively unexplored vertical will increase our market reach, reduce our dependence upon state-sponsored launches and expand our exposure to the marketplace, particularly in sports betting.
Patience is key. The market will not see the company’s current trend reversed until the investments start to pay off. The big question now is: what kind of revenue will automation bring in?
Catena Media, a multi-channel company that is leaner and “nimbler”, could be back to winning. We’ll need more evidence before we can say that they will stop this decline.
After a year, we are still hearing that core markets, which are regulated, will be the main focus. AI is a must.
It remains to be determined how this growth will occur. We will also see if the solution works, or to use the latest buzzword in the industry.