So profits were down and...look it's a puppy!
Kindred, European growing pains and the funny world of sudden stock market announcements
Kindred Group announced their end of year results this week and there was some real “it’s only a flesh wound” energy about the whole thing. The loss of the Netherlands took an absolute hammer to NGR and EBITDA, while sportsbook margin was less than kind and the year ended with a proper whimper.
Management stressed these were temporary headwinds and results in the fourth quarter were always going to be against tough comparatives. And broadly this is true. Kindred is a company I have long admired, full of smart people who really get this sector. But the fourth quarter on the EBITDA chart sitting below the +15% looked almost comedic as a consequence. Look, everything is fine. It’s great. Record profits!
The loss of £88m in Netherlands revenue clearly wasn’t the sole contributor to a £90m drop in underlying EBITDA in the period, but it was a large part of it and it will continue to depress EBITDA until the market comes back online. While there is a clear route back to that market with an application in with the regulator it’s not coming immediately and it won’t be an instant return to the good old days.
Outside of this Kindred can look to the newly regulated German market where it was never a major player previously as a growth opportunity and it is still very small relatively in the UK, even though that market doesn’t have the best near-term outlook. The Nordics are pretty mature although they might be able to squeeze a bit more share from Sweden, but the outlook in Norway and Finland is much more challenging.
Like everyone else they are looking to the US as the big greenfield growth prospect, but unlike most of their peers they have not really plunged in two footed and have a negligible market share. Management say they are holding off from getting involved in “unhealthy levels of bonusing” and will ramp things up a bit more once they are on their own PAM, with this set to roll out in active states during CY22.
But really there isn’t a lot to cling to at the moment and so what do you do when things look a bit bleak and people need some hope. Announce a massive technology project! Huzzah.
Don’t look at that, look at this!
We are transforming Kindred into a product and customer experience led company,” management proudly said in its investor presentation. That felt slightly odd as I’m fairly sure it’s always seen itself as that sort of company, but regardless the concept was clear. The days of commoditized product and competing on marketing were over and the days of product are here.
Well….not quite here but here in a year or so if things go well and we still have some other agreements until 2026 so don’t worry if we don’t do it straight away but we certainly plan to do it soon honest. And the building blocks are all in place, with Relax Gaming brought in-house and, the most significant announcement, a move to an in-house sportsbook solution and off the Kambi platform is now underway.
The Kambi platform was, of course, originally the in-house sportsbook platform so really this is a move away from the in-house platform that became the outsourced platform back to a new in-house platform to replace the old outsourced platform that used to be the in-house platform.
Side note: I am available for corporate communications work.
Now this is interesting for a few reasons. Kindred has always been a company that hasn’t toed the line of industry convention. They have tended to zag when others zigged, and they were pretty firmly wedded to this model of mixing closely linked third-party suppliers to in-house product work. The idea being you gained the benefits of B2B scale for the commoditised elements and focused on the pieces of the stack where you can make a difference.
A shift in thinking
So this announcement speaks to a much larger shift in industry thinking and potentially a realisation that this model is broken. Does it mean the customer is maturing to a point where product really matters, not just matters a bit as has been the case for the past decade? I personally think it probably does, and Kindred are a couple of steps behind some other operators who realised this a while back.
The other, more cynical perspective, is it doesn’t mean this at all and this industry remains a marketing industry with a bit of technology sprinkled throughout. And that this announcement was what you might call a dead cat in political terms. Something that is designed to take away all the attention from the bad news and give people something to talk about that has no immediate outcome.
And to be honest, it may well be a bit of both. Stock market announcements are as much about keeping investors and analysts excited about the future growth story as they are discussing the current health of the business. That weird world where a dollar earned tomorrow is worth two dollars earned today. And the idea the business is transforming into a vision of the future is much more compelling than “ah we can grab a bit more business from Germany lads”.
But even if that was the intent here, to overlook it would be a mistake. Because this absolutely is where the industry is heading and where the next set of winners and losers will be defined. Yes the likelihood is they will be the same winners and losers as now due to the sheer scale of the resources and investment behind the big online gambling firms technology departments these days.
But at the risk of repeating myself we are still so very far from a revolutionary customer experience in online gambling, and the door remains open for a (well capitalised) innovative product led solution. The next stage of this sector is likely to be fought around product and CX and not marketing, and getting ahead of that curve will be extremely important to anyone.
Slides taken from: https://www.kindredgroup.com/globalassets/documents/investor-relations-related-documents/financial-presentations/kindred_q4_2021_presentation_f2.pdf