Q&A: NetEnt on the path to success in the US and the Evolution Gaming merger

Over the last two years, NetEnt has been on a transformative journey, which has seen the business arrest successive declines in revenue with a return to financial positivity, punctuated by the accelerated acquisition of Red Tiger and a restructuring of its marketing and financial departments.

Last week, the firm announced its second consecutive quarter of revenue growth, with Q2 2020 revenue growing 36% year-on-year and record growth in the US. It is this return to positivity that has made the business the target of a £1.6bn takeover bid by live casino giant Evolution Gaming.

Below, NetEnt CEO Therese Hillman chats financial growth, aspirations in the US and the potential impact of the takeover.

EGR Intel: A lot of positive results during the second quarter, what do you think is the standout area of growth and why?

Therese Hillman (TH): Of course, the accelerated growth in the US market stands out and the fact that NetEnt, excluding Red Tiger, generated organic growth because that has been a journey for us over the last two years. When you add in the strong performance of Red Tiger and NetEnt Live as well, it’s very encouraging. As a business, we’ve often discussed the need for all the parts of the business to deliver and this was the first quarter where everything contributed to the overall growth, which I was pleased to see.

EGR Intel: What for you has been the secret to NetEnt’s success in the New Jersey and Pennsylvania markets and how do you plan to roll that out into other states?

TH: For me, it’s down to the execution of the whole company in its operations because the US is a complex market and one needs to have knowledge in all areas in order to effectively enter those markets. We have learned several lessons of how to do it from being present in the New Jersey market for the last couple of years now and have built on that knowledge with our expansion into Pennsylvania. The team that we have on the ground is very strong and we have good relationships with domestic customers as well as with the regulators. We also have that internal knowledge of compliance regulations and technical requirements needed to make a success out of US expansion. So that’s our secret sauce.

EGR Intel: Do you believe the shift online in the US will continue in the post-Covid-19 environment?

TH: Yes, I do. What we have seen based on patterns seen in other countries is that the players we have attracted during this period will come back and become loyal players. We’ve seen higher return rates in the US versus other countries. Of course, US sports bettors might bet less on slots because they have other options now, but I still think the increased player base will benefit us in the near future.

EGR Intel: At what stage is your proposed expansion of the Red Tiger brand into the US?

TH: Pennsylvania will be the first state in which we expand the Red Tiger brand, and then of course the ambition is to roll up both brands in all states which are open to online casino gaming. The ambition is to do it in H2 of this year, but it subject to regulatory approval, so it’s very hard to be exact, but our ambition is to launch in H2.

EGR Intel: Do you plan to expand your operational capabilities as a result? If yes, in what areas?

TH: We definitely need to. The current team is very small and we are now expanding the account management team in the US as we have more customers to serve. We will also be expanding our local knowledge within compliance, technical account management, change management and all those key roles that we need to have working US hours in order to serve all these customers in the best way.

EGR Intel: How do you plan to increase the penetration of the Red Tiger brand across other regulated markets?

TH: For me, it’s by following the normal pattern of how we grow our business. What we need to do is roll out with more operators in Spain and places like Italy, and then start to deliver localised content for that market, customer-facing content for the key operators in those markets and really focus on delivery. Italy and Spain are the obvious ones, and then of course there are other regulated markets such as Pennsylvania and the US that we’ve not entered and we’ll follow the same strategy there.

EGR Intel: Will Germany become a good regulated market for NetEnt, once it chooses to legalise online casino?

TH: Regarding the long-term future of the market, the digitalisation of the market will increase and more players will move online, so I think it will be a good market for the group. However, in the proposed regulatory environment, at least in the short term, I don’t this will be beneficial for anyone. We need to watch carefully when it comes to channelisation versus the regulatory requirements and see how that will play out. It’s the same story I think in all regulated markets where you have a sound regulatory environment combined with healthy tax rates, you achieve very high channelisation. The trick in Germany will be to create this sort of market.

EGR Intel: In what ways has the integration with Red Tiger transformed NetEnt into a more productive and faster-paced company than it had done previously?

TH: I would say that we have come closer within the company and that we’re working as a faster and smaller company compared to how we used to. From a business perspective, we are less siloed and, as a result of integrating the Red Tiger business, our commercial teams can deliver both NetEnt and Red Tiger products far quicker to our customers following the integration. So, I would say that we are running faster and that we see it’s needed. It’s always good to have a benchmark of how good you can be and how fast you should be. Absolutely. I mean, it gives you something to aim for. And obviously, once the benchmark is achieved, you’ve got that positive reinforcement that you’re doing the right thing as a business.

EGR Intel: What are the significant synergies that will result from the Evolution Gaming takeover?

TH: The position of the company as a combined group, together with the cross-selling opportunities in our different markets, would be obvious ones. If you have a great product across the board – you have a very strong live product, strong slots, strong table games – and if you have the full offering, then you have a very good chance of becoming the best partner of gambling operators. Those are the given ones and also the innovation that comes out of combining three brands into one group is pretty exciting. There will be a lot of talent there going forward.

EGR Intel: Do you think the positive integration and benefits from the Red Tiger brand being brought into NetEnt accelerated the potential takeover of the business by Evolution Gaming?

TH: From a financial perspective, it’s clear that we have returned to organic growth again. We have higher margins and with the acquisition of Red Tiger, we occupy a different position in the market, so from that perspective we are more attractive. However, it’s also about the journey that we’ve been on for the last two years, which has made us more attractive because we’ve taken a lot of actions in order to transform the company. When we bought Red Tiger, we saw that there is a larger business opportunity in working together and I think Evolution Gaming is seeing that now clearly as well.

EGR Intel: If the Evolution Gaming deal goes through, are there any business concerns over trying to do too much at once?

TH: I think this is primarily a question for Evolution Gaming. Our focus is to deliver on our long-term plans and we have a joint plan for NetEnt and Red Tiger which focuses on hitting our numbers, something which I think is in the best interests of all parties concerned. Coming back to when we acquired Red Tiger, we wanted them to deliver and continue to do so and I think Evolution will have the same mindset; no one wants to mess anything up.

EGR Intel: Will the potential takeover of the business by Evolution Gaming help or hinder the progress of the Red Tiger migration?

TH: It’s a difficult one to answer, the migration of Red Tiger is in line with our plans and all the improvements that we’re making to the business, so it’s natural that Evolution as prospective owners will want to continue that and not hinder it.

EGR Intel: What are your priorities for the rest of 2020?

TH: It’s definitely to drive all these growth initiatives so we have taken all these cost measures and we believe that the costs are at a much healthier level. So, driving our growth initiatives, launching NetEnt across more states in the US, launching Red Tiger in Pennsylvania, and then all the product improvements that we’re currently working on and we have in the pipeline. Those are my priorities.