Catena Media hopes fierce sportsbook competition can help turn tide after tough Q3

tide turning
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Catena Media has experienced a tough period of trading in Q3 as revenues declined by nearly 30% following the decision to change contracts with operators from cost-per-acquisition to revenue-share deals. 

Reporting its Q3 results, Catena Media reported revenues of $17.4m, marking a decline of 28% year-over-year. Despite spending the last 18 months shifting its focus to be a North American-focused business, revenues deriving from the region decreased by 29%. 

This, management outlined, was due to the transition from majority CPA contracts with operators to new, revenue share deals. The firm stated that agreeing to rev share deals will help grow revenue long-term given the higher value nature of those agreements. 

Revenue in North America was $14.6m, making up the overwhelming majority of total group revenue but declining 29%. Revenue in North America was broken down into $9.5m from casino, which is down 18% annually, and $5m from sports, which is down 43% YoY.

New depositing customers from its continuing operations was 44,986, down 34% YoY.

CEO Michael Daly told investors that while rev share deal will pay off long-term, there are shorter-term headwinds: “This rebalancing will secure a more sustainable revenue inflow over time but creates a negative short-term revenue impact as the volume of upfront CPA payments is reduced. This may require a potential review of our financial targets, but we expect the shift to contribute to higher total revenue per new depositing customer. 

“And over the longer term, the greater stability of incoming payments under revenue-share arrangements will enhance our ability to plan investments in the organization and growth-oriented projects. It will also offset some of the volatility inherent in a CPA-only model, especially in the context of new state launches.”

Daly also noted that the casino segment, despite falling revenues, faces an exciting future. 

“CPA rates in North American casino increased slightly during Q3, underlining operators’ continued appetite for recruiting new players in this high-margin market,” he explained. 

“Overall, casino revenue decreased due to a drop in the social and sweepstake segment, but performance in our mature regulated casino markets was rather resilient. In New Jersey, where we have been active for 10 years now, our media partnership with helped drive a solid revenue increase.”

Despite topline headwinds, the firm remains confident in its longer-term prospects in North America, which is still operating at a strong adjusted EBITDA margin of 44%. This is down 12ppts from one year ago, with the adjusted EBITDA figure decreasing 44% YoY to $6.3m.

A lot of the declines witnessed on the global stage reflect Catena’s downsizing linked to its strategic review, which has now concluded with the sale of its Italian business.

The review, which raised around $83.2m in asset sales, is now concluded and the proceeds will be used to repay debt and deleverage the company’s balance sheet. 

Another consequence of the review is that the firm is now focusing on regulated markets, and 90% of total group revenue came from regulated markets in Q3. 

Completing its strategic review, group leadership expects a scheduled in-flow of net proceeds of $50.3m from 2023 to 2025.

Catena maintains its long-term 2025 targets, aiming to achieve revenues of $125m in North America, on a net interest-bearing debt to adjusted EBITDA ratio between 0 and 1.75 times.

Daly stated: “It is 18 months since we announced our strategic review of the business and embarked on a journey that would streamline Catena Media and equip us for the next chapter in our story. That journey, during which we sold assets for EUR 76m, repaid debt and refocused the organization, has come full circle. 

“The divestiture of our Italian businesses completed the review process and finalized our strategic reset. Today, we stand strong as a lean and robust organization that is net cash positive and geared to invest in future technologies to drive expansion in our core North American market.”

The difficult Q3 was amplified by increasing competition in the US affiliate market, Daly told investors. There were significant challenges, particularly in sports betting, where operators reduced CPA rates as they sought to reduce costs in a bid for profitability. 

However, with new entrants to the sportsbook market such as the recent launch of ESPN BET, which has indicated it will spend heavily in the next six months, there is ample opportunity to take advantage of the opportunity. 

“When overall marketing expenditure falls, user activity decreases across the market and results in lower organic search levels. We saw this effect in Q3 with a reduction in new depositing customers across the group, a decrease that was for the most part attributable to North America. 

“After a phase of consolidation, we see encouraging signs that competition is increasing again on the operator side. New players are entering the market, which will challenge the status quo and should encourage operators to allocate more funds to marketing as they defend their market positions.”