EGR Marketing: In April, you acquired WhichBingo for an undisclosed sum. What does this bingo portal, which has been around since 2000, add to XLMedia’s portfolio?
OW: WhichBingo is an established, solid, well-known name in the gambling sector and the UK in general. The sellers and the staff who worked on WhichBingo have done a fantastic job positioning it and definitely feel that it benefits from the scale of being part of XL. We have a lot of interesting opportunities and things we want to do with it. We have done upwards of 20 M&A deals since the listing, so this sits as a solid asset that we have bought and we will put it together with the rest of our portfolio and keep optimising it. We are always looking for assets that weren’t built to sell, and WhichBingo was definitely not built to sell – it was built to be a good comparison site.
XLMedia says there is still an opportunity for large bingo affiliates like WhichBingo
EGR Marketing: How much potential is there still in bingo?
OW: I think there is still opportunity for a few larger players, and WhichBingo is the largest of them. It [bingo] is mainly a UK-centric product and with a certain demographic but it is very stable. [Online] bingo is one of those products that has been around 18 years and it doesn’t seem to be going anywhere. I see it as an interesting one and something that we should have, but in terms of M&A going forward you’ll probably see us do more deals in other verticals.
EGR Marketing: Leading Finnish gambling information company Good Game was acquired for €15m earlier this year. What was the strategy behind this purchase?
OW: The strategy was to continue expanding our portfolio in a market that we have been in for a very long time: Scandinavia. We know how to run these assets, we have the teams and we have the volumes. To take over solid quality assets like the ones we’ve bought, it is quite simple for us in terms of integration. We and our investors love it, and the integration risk is quite low. I’m convinced that the assets we have bought are very high quality and, so far, we are very happy with the performance.
EGR Marketing: Despite all the consolidation in the sector over the past few years, why has XLMedia largely refrained from going on an aggressive shopping spree?
OW: We have been around since 2002/2003 and we have a large stable of assets that we are developing internally as well, so we are not reliant upon acquisitions for growth. And when we guide analysts and the market we don’t really forecast acquisitions – our focus has always been organic growth. Of course, there is an opportunity in the last five or six years with the consolidation in affiliate marketing, but I completely agree that we haven’t been doing it as fast as others.
We have taken a safe and diligent approach, and our leverage level is close to none.
It’s also important to say that none of the factors that we mentioned would each individually reach a point where we would put out a profit downgrade. It’s a variety of different things that bundled up together into a perfect storm. Most of them are manageable and we believe they will get the business back to growth. There is nothing that is systematically flawed in the business – all the machines are working, the people know what they have to do and we have mitigated a lot of the issues.
In Germany there was a period of uncertainty at the beginning of the year as to where the market is going and around VAT charges. That affects the general nervousness in the market and an unwillingness to engage in larger deals from the operator’s side. And we had some SEO issues on the publishing side; mainly things like scraping attacks and Black Hat techniques used against us.
We are not the only [affiliate] in the sector affected by this, but we have upgraded the technology on our side of the business to deal with this and we are at a point where we have stopped the negative effects of it. We are not seeing any more drops in ranking and we are seeing mainly increases in rankings, so we believe, midterm, we will definitely gain positions back and get the division back to growth.
EGR Marketing: How has the business been affected by this “perfect storm”?
OW: I think all these things have to be remembered in context. We started 2017 with a forecast of $36m EBITDA and we ended up at $47m after two profit upgrades. The bar was set relatively high going into 2018 and with things like Australia closing and nervousness in the UK and Germany, it created challenging marketing conditions. But we believe that we can mitigate the risks and believe in the business going forward. We have a positive future in the longer run and this will be remembered more as a speed bump than anything else.
The business has seen tremendous growth in the past two years… if you zoom out and see the growth trajectory, this will not have a significant effect on it. I have been buying lots of shares in XLMedia myself, including more than £300,000 on Monday [when the profit warning was issued], which comes on top of quite a lot of investment I’ve done into the business in the past year on a personal level. I’m committed in the long run.
Managed to dig this out which puts a lot of meat on the bones of recent events....
Can XLMedia weather the “perfect storm”?
Despite XLMedia recently issuing a profit warning, CEO Ory Weihs insists the London-listed digital performance marketing firm is firing on all cylinders and firmly on track to “get back to growth”
Julian Rogers
25 July 2018
With its fingers firmly planted in many pies, including gambling, mobile games, cybersecurity and personal finance (credit cards, loans and mortgages), XLMedia’s bulging portfolio helped drive revenues up 33% year-on-year to $137.6m in 2017. Yet it hasn’t been completely smooth sailing in 2018. On 11 June the AIM-listed business, which sits third in the EGR Power Affiliates rankings and owns more than 2,300 websites in 18 languages under its publishing arm, issued a profit warning, triggering the share price to plummet by over 30%.
XLMedia said it expects to report lower than anticipated revenues of circa $130m. However, CEO Ory Weihs is keen to stress that a variety of factors were to blame, including regulatory changes (the Australian market closing and “nervousness” around Germany and the UK), as well as scraping attacks and Black Hat SEO techniques used against the company’s sites. Moreover, Weihs, who founded the business in the early 2000s after three years of military service in his homeland of Israel, says XLMedia is equipped with the necessary tools and expertise to overcome these challenges.
In fact, he believes this latest chapter in XLMedia’s history should be put into context and will ultimately be remembered “more as a speed bump than anything else”. EGR Marketing catches up with Weihs in the Czech capital Prague, to hear about the recent travails, the purchase of award-winning bingo portal WhichBingo in April, and why he’s so bullish on XLMedia’s future (backed up by the fact he bought more than £300,000 of shares in the business following the profit warning).
EGR Marketing: What were the key factors behind XLMedia issuing a profit warning on 11 June?
Ory Weihs (OW): A lot of it revolved around regulatory changes, but not regulation that prohibited activity in the market; we always exit markets the minute there is any issue with them. This was mainly around advertising guidelines and a lack of clarity about what we can advertise where. All the confusion around guidelines and the potential increase in gross gaming revenue tax caused some sort of stress on the operator level in the sense that they were less inclined to do more CPA deals and fixed-rate deals. From our side, that’s absolutely fine and we always say that we want to increase the amount of rev share [deals] in the business, but it happened kind of fast.
There will definitely be a July update. One would expect it on Monday 23rd July which is exactly 6 weeks after the June 11th announcement. Suppose there is an outside chance it comes on Mon 30th July but i doubt it. The market waits on tenterhooks. However I can't help but feel that all current regulatory concerns are already baked into the price at this depressed level. The share price has halved after all. I think XLM could begin to look an absolute bargain any time now. . .
Interesting angle...The World Cup 2018 is the biggest betting bonanza in human history. So far it's been a bookies dream with shock results for Germany, Spain, Brazil, Argentina and even Colombia. Also I have a feeling there are more shock results to come as the tournament is wide open for once...Come on England! One would hope XLM took a conservative forecast in respect of their revenue share generated from this event so we could see some surprise upside here. Straws n Clutching come to mind I know but ever the optimist. And yes, if you're wondering, some of the money lost to bookies was mine although I won it all back and more with flutters on Serbia, England and Belgium..get in there! Love a gamble...suppose that's why i'm here.
Loving this volume. Don't think we've ever seen such sustained daily volumes in XLM. Some huge buys throughout Monday. My moneys on stake building. Value will out for XLM shareholders. More to come, especially from these bargain basement levels. Get in there England!!! Vindaloo, Vindaloooo, Nah Nah!
Very happy to read this morning that Oyster European Selection, the biggest shareholder in XLM and one of the best performing funds out there decided to increase their share holding here after having 'the chat' with Ory last week. It is fair to assume they have greater insight than all of us to put together. Big buys continuing this morning also bodes well. IMHO XLM is one of the ripest acquisition targets on the planet right now. There are at least a handful of operators who would love to buy/merge with this company . This 'angle' provides great support to the share price at these levels. As Yazoo said 'The only way is up'
30 minute and hourly chart now looking great. Big green bar formed on the 50 day EMA on the 30 min and a nice bullish hammer in place on the hourly. When we move to the daily chart there is not the slightest resistance till we encounter the 20 day EMA at 150. N that's what u get when a price falls off cliff like this did....the snap back up is juicy. These overreactive drops offer great opportunity.
It's been the same pattern with this share since 2014 listing. At the slightest whiffle of uncertainty there is an almighty overreaction in the share price. This presents huge opportunity for those who can control their emotions somewhat. Apparently i read somewhere that there is no book build in XLM Shares and therefore the Market Makers are left to build the book themselves. Therefore it appears they take it to extemes on the downside to subsequently make the most profits on the way back up. Oportunity abounds here.
Actually not sure that people do know about the rampant consolidation going on in this online sector. The other affiliates Catena Media and Better Collective can have access to stacks of cash listed on the Nasdaq Stokholm then you've got the likes of GVC and other Bookies worth in the billions of pounds. All of the above would simply love to acquire/merge with XLM. I think the takeover/merger scenario really underpins the value on offer here.
If I was Catena Media (CTM) i'd be loading up with as many of these as poss. If they could get hold of XLM there would literally be no stopping the joint XLM/CTM entity. Together they'd dominate online affiliate & performance marketing space worldwide. The recent listing of Better Collective (BC) on the same Nasdaq Stolkholm also gets the juicest flowing. I can see a scenario whereby at some point CTM or BC are in a race to acquire the golden 'value' goose that is XLM. CTM 2018 forecast Rev/Profit looks v similar to XLM. However XLM Mkt Cap currently 1/3 of CTM. This is the bargain of the year surely.
I think after sudden drops like this the most useful chart is the WEEKLY CHART. You will see on the weekly chart that we fell perfectly back to the 200 Day EMA at 102p intraday today. Therefore anywhere round here looks like a dream of an entry point. Also over the years i've learnt in these situations that the 5 days of the week become like the 5 stages of human emotion. Monday shock panic, Tuesday more shock, fear, Wed AM Maximum fear, Capitulation. Wed PM smart money comes in, Thursday recovery begins, Friday strong into the close. Simple as that lol!
Just camr across some bullish sentiment on WheelieDealers latest blog http://wheeliedealer.weebly.com/blog/is-there-a-wedding-weekend-charts-with-party-guests-wjg-grg-som-xlm
Ory stressed that more and more companies are moving to performance based 'Revenue Share Models' in relation to their spend on online advertising budgets. This way said company gets a risk free guaranteed return on advertising spend. They only pay when XLM generates a paying customer for them or that customer takes a certain credit card for example or other milestone. It makes sense and I can see mass adoption in future. Companies don't want to throw millions away anymore on marketing with no guarantee of a return. This way they only pay when XLM get them results. Cash generation just keeps on improving. As of end of June $43million back in the bank ready to be spent on further earnings enhancing aquisitions. When you take off the subsequent int dividend $8mil & acquisitions since then $19.25mil that leaves $23.75mil plus the cash generated since July 1st. Nice. Ory mentioned in the presentation that he knows the guys at Catena Media to 'go have a beer with'. Catena has tried to replicate XLM by acquiring expensive assets in established markets taking on a lot of debt in the process. They trade on the Stockholm Nasdaq at a PER of over 20. There current market cap is �392 million which is where XLM's will be shortly IMO and thats just for starters. Whilst discussing their merits Ory said that he wanted to see more organic growth from them and proof that they could grow the business in that way. After all XLM has been leaving them standing in terms of organic growth. Afterwards this got my mind thinking why would Ory like to see organic growth from them? One can only wonder about the potential of a merged XLM/Catena Media online performance marketing behemoth. Food for thought I suppose but personally I think they need Ory far more than he needs them. Ory's got the Aces. Onwards we march.
Was interesting to note that XLM are still well under the radar. In March there were 13 attendees. On Tuesday there were 18. The herd will arrive in due course, all the better for us. On acquisitions Ory stated they have a constant pipeline of potential. It could be anything from $200k up to $100 million. He is very selective and only adds those assets where he sees real value and return on investment for shareholders. For the first time they are now lining up potential debt financing to increase the growth trajectory if they see appropriate targets. I expect the market would look very favourably on this if it happens. Inbal went on to explain that when they aquire a website they are able to strip away most of the cost base (staff, old tech) and bring the asset in-house using their proprietary tech which then greatly increases productivity, margins and ultimately profit. I see it as XLM (in Publishing) now having a 'Website money tree.' They can feed in any half decent money making website with traffic into their 'machine' and out the other end pops a leaner, smarter, busier, interlinked, higher margin, tech driven growth asset. And their tech capabilities are growing all the time. Is there a limit on growth such as this? I don't think so IMO. Cyber Security they see as a future growth engine so Securethoughts.com is a foothold in the space and one they can test the water with. Chatted to Ory and Inbal in the lift on the way out. They had been all over the City non stop for two days 8am till 6pm. And the following day was more of the same. I assume they were meeting II's and I get the feeling more tier one institutional investors will be coming onboard in due course.
They have an uber conservative approach to broker forecasts so I expect EPS and PBT to be comfortably ahead of forecasts this year and way ahead next year. The dividend was unusually high last year at 57% of profits. This year back at the 50% level. Ory stated they are 100% committed to maintaining their minimum 50% of profits pay out ratio so expect a juicy jump in the dividend next year and onwards. Uber conservative approach also applies to the accounts. Measures like EPS are not adjusted or massaged in any way which is refreshing. Any potential costs are over provisioned for. I can see their focus is always on being careful, under promise and over deliver which bodes well. I asked Inbal personally about the Income Tax dispute with the Israeli Tax Office relating to 2012 - 2015 period. She said it has been over provisioned for in the accounts 'just in case' and will have no material impact. Compliance is a constant focus for them. This year in the Partner Network they cut 25% of their affiliates who didn't meet their standards. This is a legacy division now. It's profitable but it is not a growth engine. However it can throw up small profitable acquisition opportunities. The focus for growth is the Publishing & Media divisions. Furthermore they have nothing to do with spreadbetting companies and will avoid any regulatory issues that may affect the spreadbetting industry. Ory stated they only operate in fully regulated markets but they are 'ready and waiting to go' in those markets like Sweden and the US where regulation is in the post.
With 1 month to go till the next XLM Investor Presentation I thought I would repost these, particularly for the benefit of new investors.. Here's my thoughts n takeaways from the chat on Tuesday. Ory & Inbal Lavi (CEO Israel) both came across very well face to face. Words I would use to describe them would be authentic, humble, driven, honest, careful, hungry, relaxed, confident, visionary, prudent and excited about the future. Inbal runs around 370 staff from HQ in Israel on a daily basis whereas Ory is based in Prague with his focus on M&A and further organic and strategic growth. Now have 90 in-house tech developers comprising 25% of staff. Their own tech and IP is a considerable moat preventing new entrants in the space and allowing XLM to cement their market leading edge in online performance marketing. The combined Clicks-Mob Dau-up group now showing synergy benefits on the Media side with organic growth set to continue. Asia represents 5% of revenue and targeting double digits here through mobile apps growth in India & South Korea. Remain heavily focussed on growth in Financial services in US and Canada where the margins are high coming close to those achieved in the Gambling vertical. Price comparison mkt in North America is still growing whereas its saturated and expensive in the UK. XLM will be running their price comparison sites in a lean value oriented way with online the sole focus. There will be no Meerkats or the like.