Topic: following 7x peak Eurojackpots in the last weeks, Germany was in a lottery fever with exceptionally high user activity and lottery spendings up 2-3x above average. For Germany's #1 online provider of lottery, this bodes for exceptionally high lottery billings and sales in this period, but more importantly, user intake at attractive prices. In detail:
Q4 jackpot situation: out of the two main German lottery products, the Eurojackpot is the one to be excited about in Q4. The jackpot was hit last Friday, thus Q4 came with a new a record streak of 7x peak jackpots, which led to a new record of € 1.24bn in lottery spending on this product in Q4. This was a staggering 33% above the LTM average and already (with 3 weeks to go in Q4) exceeded Q4'23 by 33% yoy and Q2'24 by 17%. - see p. 2
Q4 billings & sales growth: the jackpot situation should have already pushed Q4 top-line to new peaks, as several sales drivers are kicking in at the same time: (1) the jackpot situation leads to an higher spending, as the inactive customers become active at these times which adds to the high user base on top of strong customer acquisitions of the past. All this should leads to elevated lottery billings in Q4, which we assume to arrive elevated by 34% yoy at € 281m (assuming average jackpots and user behaviour from now until end of Q4). Now even better, ZEAL's price optimization as of H2'24 should also expand the billings margin by 3.9pp yoy to 16.3% (eNuW), serving as additional and major lever on sales. Consequently, Q4 lottery sales should rise by a staggering 75% yoy to € 46m. - see p. 2
User intake at attractive prices: To take advanteage of the jackpot situation (i.e. when most players are more prone to switch from offline to online), we expect ZEAL to go full-throttle on marketing (eNuW: € 18m, +240% yoy). In turn, this should in turn drive new registrations up to 400k (eNuW; +334% yoy) at attractive prices (eNuW: CPL of € 35, -6% yoy; -16% qoq). As the retention rate stands at c. 25%, this should add 85k in MAUs, increasing the revenue base for lottery revenues and cross-selling potential.
In sum, ZEAL should finish off 2024 slightly above its sales guidance (eNuW: € 170m), whereas we expect managment to continue balancing marketing expense and profitability, leading to an EBITDA within the guidance range (eNuW: € 45m). Against this backdrop, we reiterate our BUY recommendation, keep ZEAL in the NuWays AlphaList and increase our DCF-PT to € 60.00 (old: € 57.00)
ISIN: DE000ZEAL241
