XLMedia has admitted that the business will have to ramp up expenditure to support sustainable growth in the medium term, prompting the performance marketing specialist to launch a strategic review with a view to overhauling its operating model.
In a trading update released today (19 December) XLMedia said revenue for the year ended 31 December was likely to come in around $78m (£59.5m/€70.0m), down from 2018’s $117.9m total. Earnings before interest, tax, depreciation and amortisation will likely to be around $32m.
While it said it was “encouraged” by the roll-out of sports betting across the US, and was looking for M&A opportunities to accelerate its expansion, regulatory uncertainty in other territories continued to create significant uncertainty for the business.
In 2019 it has suffered from difficulties in the newly-regulated (and strictly policed) Swedish market, and seen new regulations force a number of its clients from Switzerland. It has also seen the contribution from its UK business decline as a result of an increase in remote gaming duty.
This has prompted an internal review, initiated by new chief executive Stuart Simms, after taking on his role in October, examining the company’s operating model, organisational structure and company culture.
This has concluded with three key initiatives designed to “strengthen the foundations for the group’s wider growth aspirations” to be implemented going forward.
Core to this will be a “transformation plan” to evolve its operating model and personnel strategy. This will touch on all areas of the business, with a view to highlighting which divisions need to be changed, scrapped or merged. Efforts are already underway, with a number of executive positions, both at headquarters and subsidiary levels eliminated to create a unified, aligned management team.
However, XLMedia added, there will be particular emphasis on retaining and nurturing talent already within the business. This is expected to result in around $3m in “transformation costs” over 2019 and 2020.
Publishing will also grow in importance, with its activities around the world set for heavy investment and expansion in 2020. With a network of over 2,000 content-rich websites across a range of sectors, the business believes consumer engagement to be its core skill.
“As a global business, XLMedia will seek to further deploy its online real estate and market knowledge to expand its geographical footprint in areas such as North and Latin America and APAC, and to broaden its growth potential,” it explained.
“Owning strong publishing assets puts the group in a position to create better engagement and results than other traditional performance marketing, whereby consumers actively choose the content they want to consume, generating both greater value and increased levels of engagement.”
To facilitate this expansion of the publishing business, XLMedia will ramp up spending, both investing in its existing content sites to grow organically, as well as pursuing complementary acquisitions. Doing so will improve engagement in existing territories, while also allowing it to expand its reach into new verticals and territories.
A review of XLMedia’s technology platform, to leverage opportunities around smart data analysis and artificial intelligence in order to deliver appropriate content and offers to consumers, will also be launched. This will be carried out over the coming three months, with future technology investments to be determined by the findings.
These initiatives will result in increased investment in the business’ core capabilities, assets and new markets, above the levels originally projected for its 2020 financial year. Alongside the one-off transformation costs of $3m, the costs are expected to lead to a significant decline in EBITDA.
“Having now spent a couple of months immersed in the business, I am excited to be leading it towards the next phase of growth,” chief executive Stuart Simms explained. “Whilst there are some clear near-term headwinds and operating issues (similar in many other companies of our size and stage of development), our core expertise, assets and market presence remain incredibly strong.
“We have already identified and are investing in market opportunities which will generate sustainable growth in the future. I look forward to the coming months to continue to evolve our strategy, progress with the transformation program and execution of our strategic plan.”
