Zeal Network had to absorb a significant increase in marketing expenses in the first nine months of the year to record income and profit growth.
Zeal, an online provider of lottery products, increased marketing costs by 27% to €30.7 million during the year to September 30. This intensification of marketing was due to the fact that the Eurojackpot and Lotto 6aus49 draws reached their maximum jackpot five times.
While expenses increased, the Germany-headquartered company remained on track to meet its 2023 financial targets as it significantly increased its billings and revenue. The marketing push also resulted in 518,000 new customers being acquired in the nine-month period.
Driven in part by a successful third quarter, Zeal’s billings rose 16% to €633.2m ($677.8m/£551.6m) in the first nine months of 2023. At the same time, sales also rose by 16% to €86.0 million. At 12.5%, the Group’s gross margin was close to the previous year’s figure of 12.8%.
Zeal also received €1.2 million from its new online gaming offering, which launched in June 2023. Zeal now offers 28 games on the Lotto24 and Tipp24 platforms.
Zeal’s revenue increased through successful campaigns
Even taking into account Zeal’s increased marketing investments, EBITDA increased by 5% to €23.2 million. Growth after the third quarter was significant as marketing expenses resulted in a 15% decline in profits after the second quarter.
EBIT amounted to 16.7 million euros, while the profit for the period after taxes fell from 12.1 million euros in the previous year to 10.1 million euros. This is due to a EUR 1.1 million lower financial result and a significantly higher tax expense compared to the previous year.
Increased marketing costs, including investments in brand building through increased TV advertising, resulted in acquisition costs per registered new customer increasing by 27% to €46.81 compared to the previous year.
Personnel expenses rose by 9% to €15.2 million. Zeal said this was due to hiring additional staff to support growth and develop new products. Zeal’s average headcount increased from 159 to 170.
Direct operating costs increased by 11%, although billings due to one-off costs related to the creation of lottery clubs increased by 16% in the previous year. Indirect operating costs increased by 8%. This was mainly due to costs for strategic technical projects for the Spanish ONCE business, external legal advice, software costs and additional provisions for legal disputes.
Sebastian Bielski, who was appointed Zeal’s chief financial officer in August, said the group benefited from smart strategic decisions.
“The strong growth in our billings and revenue demonstrates that we are continuing to expand our market leadership,” he said.
“The publication of the first figures for our online games business also shows that Zeal has made the right decision to enter this new business area. The initial successes in the online games segment also make us confident that we are on a further growth path with our attractive and growing range of games.”
On the right path with zeal to achieve the goals
For fiscal year 2023, Zeal plans to continue to expand its market leadership as an online provider of lottery products and introduce new products, including additional online games.
For the Germany segment, Zeal expects revenue from lotteries (excluding games) in the range of €800-830 million, assuming average jackpot development.
In addition, Zeal continues to assume that sales in the 2023 financial year will be between 110 and 120 million euros. EBITDA should be between 30 and 35 million euros.
Zeal added: “The company continues to expect to invest significantly more in new customer acquisition compared to the previous year and expects marketing expenses of between 34 and 39 million euros.”