Online gambling marketing business XLMedia (XLM) breaks a good run of beating expectations and raising guidance with a surprise profit warning. That causes its share price to dive 28% to 123.7p.
In an otherwise positive article on the investment case we recently flagged the risks associated with regulation and these are evident in the latest trading update.
The company cites ‘the closure of the Australian market at the end of 2017 in addition to uncertainty regarding the regulatory status of certain European markets during 2018’ for the warning.
Revenue for 2018 is guided to come in at $130m - this compares with the $147.6m previously forecast by Cenkos.
Earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to be down marginally on a year-on-year basis.
Investors, particularly those which participated in a £31.7m placing in January at 198p, will be left feeling bruised.
WHAT HAS GONE WRONG?
Despite its previous strong track record, XLMedia’s market valuation has always reflected a certain amount of scepticism and this will only be reinforced by the aforementioned mis-step.
House broker Berenberg, as you would expect, remains fully on board. It comments: ‘A number of changes in the past six months have created some short-term pressures for XLMedia.
‘1) New consumer protection rights have forced operators to adapt their guidelines on how terms and conditions (T&Cs) are advertised to customers. This has created one-off delays to some affiliate advertising practices.
‘2) Interim changes to XLM’s payment model (i.e. a switch by some operators to revenue share from cost per acquisition) create lower short-term revenues but greater opportunity in the long run.
‘3) XLM has selectively pruned some low-margin media revenue streams in an effort to refocus on higher-margin pushing work. The company is comfortable with a return to growth in 2019.’
Berenberg concludes: ‘With the business model still solid, the company accelerating its efforts in the US and the company in evaluation stages for a number of deals, we would view a pullback in the shares as an entry point for longer-term investors.’
