Leading brands with encouraging KPIs
Europe is GVC’s biggest market, contributing almost 75% of NGR. It is well diversified, with 17 countries contributing 2% or more to NGR and scope to expand in a number of core markets. GVC has four business segments with a number of leading brands, of which Sports and Games Brands comprise 96% in total.
Exhibit 3: 2016 revenue* by division
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Exhibit 4: 2016 revenue* by product
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Source: Edison Investment Research. Note: *2016 pro forma net gaming revenue (NGR) of €894.6m.
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Exhibit 3: 2016 revenue* by division
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Exhibit 4: 2016 revenue* by product
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Source: Edison Investment Research. Note: *2016 pro forma net gaming revenue (NGR) of €894.6m.
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Sports Brands (73% of revenues)
GVC owns a number of sports betting brands including bwin, Sportingbet, Betboo and Gamebookers. Within this division, GVC focuses marketing on sports betting and then cross-sells casino and other games such that NGR within Sports Brands is split roughly 50/50 between sports and games. The substantial sports book is dominated by football and live (in-play).
Exhibit 5: Sports Brands 2016 GGR
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Exhibit 6: Sports Brands 2016 GGR by Sport
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Exhibit 5: Sports Brands 2016 GGR
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Exhibit 6: Sports Brands 2016 GGR by Sport
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Improvements since bwin acquisition
Since the bwin acquisition, GVC has been focusing on increasing player value, improving cross-sell (from 89% in 2015 to 96% in 2016), optimising mobile performance and improving trading capabilities. Highlights include:
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Trading expertise: GVC’s trading expertise has now been fully embedded into the bwin sportsbook, with better risk management, tools and data driving improved margin.
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Higher volume: An increased number of live events is driving GGR (gross gaming revenue), with 10,000 streamed events in Q117.
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Marketing: Marketing spend for this division is expected to increase to 23-25%, in preparation for Russia 2018, which is expected to be the biggest gambling event in history.
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Gross margin: As demonstrated in Exhibit 7, there has been a marked improvement in the bwin sports margin since the acquisition in February 2016. The strong gross margin progression is expected to continue, with improved modelling, real time data and a healthy customer database. Q217 margins of 10.1% are in line with management’s expectations of a long-term sustainable average, but we note that gross win margins fluctuate depending on sporting results. For example, Q117 margins were affected by customer-friendly results at the end of March.
Exhibit 7: GVC sportsbook
Group sportsbook |
2014 |
2015 |
2016 |
2017 (to 21 May) |
Turnover €bn |
4.2 |
4.4 |
4.6 |
1.88 |
GGR €m |
373 |
372 |
437 |
183 |
Gross win margin % |
8.9 |
8.5 |
9.6 |
9.7 |
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Bwin gross margin % |
2014 |
2015 |
2016 |
2017 (to 21 May) |
Football |
10.1 |
9.9 |
12.2 |
10.4 |
Tennis |
5.8 |
5.1 |
7.3 |
7.6 |
Basketball |
4.9 |
4.8 |
5.8 |
5.8 |
Other sports |
8.3 |
7.7 |
9.1 |
11.3 |
Total |
8.5 |
8.1 |
10.2 |
9.6 |
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Singles |
5.0 |
4.1 |
6.4 |
6.3 |
Games Brands (23% of revenues)
The Games Brands are standalone brands that only cross-sell a small (2%) volume of sports and include partycasino, partypoker, Foxy Bingo, Gioco Digitale and CasinoClub.
Prior to the acquisition, bwin’s Games Brands lacked focus, not helped by the structural decline in the poker market and a competitive UK online bingo market. During 2016 GVC put in place a long-term strategic road map for each business, brought in new senior hires and worked on the product and user experience. The decline in Games Brands NGR in FY16 has now been reversed, and Q217 Games Brands daily NGR increased by an impressive 13%.
The global online casino market is estimated at €10.5bn GGR in 2016 (source: H2 Gambling Capital, March 2017) and, although there is less volatility than the sportsbook, industry churn levels are high and competition is fierce.
GVC has a number of well-established casino brands, which comprised 12% of total NGR in Q117. Since the bwin acquisition, the company has focused on ROI marketing and the decline in the bwin.party casino brands (partycasino and Gioco Digitale) has now been halted.
GVC’s casino brands are:
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Casino Club: a top three casino brand in Germany, with a loyal customer base of male high rollers over 40 years old. This brand has achieved a high degree of loyalty, with 2016 NGR growth of 15% and 67% of 2016 NGR stemming from customers playing for over five years.
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partycasino: originally from bwin and now decoupled from partypoker. GVC has been repositioning the brand as destination for young affluent players, launched new games and a VIP team has been hired. Management’s objective is to achieve 10% y-o-y growth and return the brand to market dominance.
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Gioco Digitale: GVC has repositioned a formerly under-invested bwin brand as an entertaining soft gaming brand, with a focus on casino and cross-sell from bingo. The integration of third-party slots has commenced.
Poker: Reinvigorated and a return to growth
Given the structural challenges in the poker market, the global online poker market has declined by 1% CAGR since 2006 and is now estimated be worth €2.4bn (source: H2GC). Bwin’s partypoker franchise had commensurately suffered from long-term decline and a lack of investment.
Since the acquisition, a new management team has reinvigorated and repositioned the brand, with targeted investment in key markets (eg Canada and the UK). Success is evident from the 16% growth in H216 vs the prior year, as well as an acceleration of daily NGR into H117.
Bingo: A challenged business
The UK is the world’s largest online real-money bingo market segment with approximately €600m in 2016 and we estimate that GVC’s Cashcade brands have c 5% market share.
Bingo is the only part of the group that is not run on the proprietary platform and, despite having one of the best-known bingo brands in the UK, Foxy Bingo has suffered a challenging few years.
Recent initiatives include a high-profile Foxy rebrand (with Heather Graham), terminating the bingo affiliate programme and launching a new casino programme. The current focus is on profitability rather than revenues, with a 15% decline in Q117 NGR vs the prior year. The majority of marketing spend will occur from September onwards, with the aim of returning the business to top line growth in 2018.
Instrumental in the process has been the recruitment of Adele Lawton as head of bingo (with 20 years’ marketing experience, mainly in bingo, with brands including Gala, Skybet and Gamesys).
Exhibit 8: Cashcade brands, % of 2016 NGR
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Exhibit 9: UK online bingo-led market share 2016
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Source: Edison Investment Research, company reports
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Exhibit 8: Cashcade brands, % of 2016 NGR
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Exhibit 9: UK online bingo-led market share 2016
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Source: Edison Investment Research, company reports
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