LeoVegas revenue up but shares fall as compliance costs mount


leovegas-shares-plunge-compliance-costsMobile casino operator LeoVegas saw its share price fall by nearly one-quarter after warning of the increasing cost of regulatory compliance.

On Wednesday, the Stockholm-listed LeoVegas reported revenue of €78.6m, a 41% increase over the same period last year, while earnings rose €1.4m to €9m. The surge reflects the company’s UK online casino acquisitions of Royal Panda and IPS (the latter since rebranded as Rocket X) plus the launch of its UK-facing betting brand BetUK. Organic growth was up a more modest 7%.

But investors dropped LeoVegas stock like a hot potato following the company’s earnings report, sending the shares down 24.2% at the close of Wednesday’s trading.

The source of the consternation was LeoVegas’ warning that tightening regulatory compliance, particularly in the UK market, was having “an adverse effect on growth.” The LeoVegas brand reported its UK market revenue falling 32% year-on-year, while the Royal Panda and Rocket X brands also suffered revenue declines.

In May, the UK Gambling Commission hit LeoVegas with a £600k penalty for misleading advertising and failing to take “all reasonable steps” in protecting problem gamblers from themselves. LeoVegas says it has since doubled its responsible gambling and compliance staff headcount.

LeoVegas maintains that this renewed focus on compliance will pay off handsomely down the road, but in the near-term it has led to increased staffing costs and, in certain markets, “a negative impact on the customer experience,” which led to a drop in average player value during the quarter.

On the plus side, LeoVegas expects great things when Sweden’s new regulated online market takes effect on January 1. Revenue from locally regulated markets accounted for 35.3% of Q3’s total, but the company expects this to jump to around 60% under Sweden’s new regime.

LeoVegas is also prepping a new marketing campaign featuring actor Dolph Lundgren (Rocky IV, The Expendables), who LeoVegas predicts you will be “seeing a lot of in the media.”

The company said Q4 has started out strong, with revenue up 29%, although the UK market continued to show a “significant impact” from the enhanced compliance activities in October.