888 Q4 revenue slumps 3% as online safety measures hit financials

888’s group revenue fell by 3% year on year (YoY) during the final three months of 2022 to £458m, according to a latest trading update released by the London-listed operator.

Updating the market on its Q4 2022 performance, 888 reported a 5% YoY drop in revenue from its online division to £326m, while the group’s retail business saw Q4 revenue jump by 5% YoY to £131m.

In respect of the online slump, 888 attributed this to continuing trends seen across the first three quarters of 2022, namely, strong performance in regulated markets being offset by enhanced safety measures being newly implemented across its UK segment.

888 suggested the retail growth was due to a “well optimised” retail estate across the UK.

Lifting the lid on its performance during the World Cup, 888 cited a successful tournament and a “strong period” in both new and existing customer acquisition and engagement across both segments, with online player days up 22% compared to the Euro 2021 tournament.

In addition to revealing its Q4 numbers, 888 confirmed pro forma full year (FY) 2022 group revenue of £1.85bn, down 3% YoY, with high retail revenue growth offset by losses in the online segment.

888’s FY22 online revenue fell by 15% YoY to £1.3bn, with revenue likewise impacted by UK online safety measures as well as the closure of 888’s operations in the Netherlands. Outside of this, revenue would have been down 4%.

Retail revenues amounted to £519m, up 54% YoY, reflecting a full year of trading in 2022 relative to partial closures during the first half of 2021. Average revenue per shop was up 7% relative to 2019.

The operator has revealed its adjusted EBITDA for FY22 is expected to be within its guidance range of £305m to £315m.

Speaking as part of the trading update, 888 CEO Itai Pazner cited the “rapid progress” 888 made over Q4 in integrating the William Hill business into its larger group, including the commencement of a migration of the Mr Green brand to its proprietary technology stack.

Discussing Q4 performance, Pazner continued: “Revenues during the fourth quarter saw continued strong trading in retail, and a robust performance online.

“As previously discussed, we continue to see pressure on our UK online revenues from regulatory change including the ongoing impact of the enhanced player safety measures, but I am confident we are building a sustainable leading business for the future.

“As we look forward, we remain focused primarily on successful integration, execution and de-leveraging in order to unlock the potential from our enlarged business,” Pazner added.

Elsewhere, 888 has confirmed chief financial officer Yariv Dafna will leave the business on 31 March, following a mutual agreement with 888’s board of directors.

Dafna has headed up 888’s financial function since November 2020 when he replaced Aviad Kobrine.

888’s search for Dafna’s successor is understood to have already commenced.

“The board and I would like to thank Yariv for the contribution he has made to 888, including playing a crucial role in the completion of our transformational combination with William Hill and leading the recent successful financing of 888’s external debt,” Pazner said.

“On behalf of everyone at 888, I wish him the very the best in his future endeavours,” he added.

888’s shares were down 4% in early trading on the London Stock Exchange, trading at a price of £89.22 per share.

In an assessment of both 888’s and rival operator Kindred Group, which also issued a trading update today, Regulus Partners analyst Paul Leyland pulled no punches on the reasons why both had lost market share during the Q4 period.

“888 and Kindred are both moving from international dotcom to multinational licensed business models in mature markets where secular growth is very difficult to find,” Leyland wrote.

“Both companies in the past have been guilty of assuming that absolute growth is proof of a strong business model, whereas growing at 15% per annum when the market is growing at 20% is really a sign of failure (albeit one dangerously easy to hide).

“The problem with market maturity is that the same hypothetical 5ppts [performance points] underperformance on a market growing at 3% means negative growth.”

Leyland continued: “Worse, the cost of mass market engagement (marketing) and localisation (tax, regulatory restrictions, more complex product and UX requirements to compete) craters margins.

“A rising tide no longer rises all ships: those even partially anchored to weak market share in mature markets are likely simply to be swamped, in our view,” he added.