NetEnt profits slide on rising operating costs
CEO Per Eriksson attributes flat profit margins to firm's increasing headcount and expansion into a new Malta office
NetEnt has reported a 3.9% year-on-year drop in Q4 EBIT to SEK 150m (£13.4m) as a result of higher operating expenses in the fourth quarter of 2017.
Internal expansion and an increase in staff numbers resulted in a 10.2% year-on-year rise in expenses to SEK 2.7m (£242k), and a profit margin of 36%.
Slow growth also contributed to the downturn, with Q4 revenues up 4.7% to SEK 419m (£37.5m).
CEP Per Eriksson said the lower than expected growth during the quarter was down to investments on strengthening the company’s product and sales operations, enhancing its live casino offering and moving into new offices in Malta.
Full-year revenues for 2017 rose 11.7% to SEK 1,625m (£145.4m) with a flat profit margin of 36.1% compared to last year’s 36.8%.
“In 2018, we are increasing our commercial focus and optimizing our organization to make sure that revenues grow more than costs,” Eriksson said.
Eriksson warned investors in January profits would be below analyst estimates for the quarter as revenues were lower-than-expected.
In an analyst note this morning, Regulus Partners attributed NetEnt’s slowed growth to pulling out of a number of grey markets, strong Q4 sportsbook margins having an adverse impact on gaming, and general slower growth in mature markets like the UK.
“NetEnt is a proven supplier with effective R&D, high quality content and a strategy to tap into areas of secular growth. These drivers should underpin medium-term performance,” the note said.
“However, two phases of ‘easy’ growth have become much more mature in several key markets, making the next phase of growth much more about strategic positioning and successful execution than simply benefiting from a rising overall sector.”
During the quarter the supplier signed eight new client product agreements including a digitally enhanced live casino developed in partnership with Mr Green.