Q&A: Ory Weihs, CEO, XLMedia
Published 7th October 2014
The share price has been on quite a ride since you listed in early March. How do you explain this volatility?
We listed at 49 pence. If you look at the history, the first trade was at 63 of something. Institutions bought in at the list price of 49. If you look at all this crazy volatility, of which the analysts will probably have better explanations than mine, there’s quite a lot of volume, which means there’s interest in the stock, which is good. As regards the initial dip, I think that the main reason is that market was expecting some big acquisition right away, and this is something I’ve told investors as well, is that we could have executed at least two out of the three acquisitions that we initially came out to the market with, we were not happy with the level of due diligence that we got.
In hindsight, the fact we passed on these opportunities and we did take this small share price dip, which I think in the longer term is not really material, it was a blessing in disguise, because the acquisitions we did execute were of much better quality and much better strategic value.
What has been driving the recovery of the stock since early August?
The reason we are on this trajectory is because the market got some kind of comfort that we are delivering what we promised. This is an organic growth business, and that’s the focus. The acquisitive side of it is an add-on. What’s important for investors to know is that we put our efforts into growing organically, and we are going to complement that by strategic acquisitions. This business in this variation has grown organically for six years now, the historical numbers have shown that, and that’s the path we want to keep walking.
Your largest acquisition to date, of ExciteAd Digital Marketing (EDM) for up to $19m in September, was outside of the real-money space. What was the rationale behind this?
We have always pilot tested other products, and social gaming was one of the most interesting for us, because while it’s definitely not real money gambling, it’s quite close. Our tests showed that social gaming was something we could do very well with, and it’s defi nitely our first real steps out of real-money online gambling. EDM is 50% US, it’s approximately 50% mobile. For us, it ticked all the checkboxes of what we look for in more strategic acquisitions. We were looking for good geographies, as in the US, the UK and Germany. We were also looking for a better regulatory profile than real-money
gambling, which social gambling offers. Finally, we were also looking for new clients, because we already work with most of the reputable clients in the real-money gambling scene. This brings us a whole new pool of clients. I think there’s plenty of work to be done in client acquisition in social gaming. EDM works with a lot of the big names, but they don’t work with everyone. I look forward to having new clients for social games, that we haven’t worked with before. So it’s quite exciting for us.
There’s plenty of work to be done in client acquisition in social gaming. EDM works with a lot of the big names, but they don’t work with everyone.
You also made a sizeable acquisition of a UK-facing sports betting business for £4m. How will the new point-of-consumption regime coming into force there from 1 October impact this and your wider business?
When we made the deal, we had already calculated point-of-consumption tax into our forecasts. It’s mostly a revenue sharebased business. So we projected what we think the impact of PoC would be, and decided that regardless of this, it was still a very good deal for us, being earningsenhancing and at a lower multiple than what we are trading at. The historical business will not be affected.
You acquired some US-facing domains earlier this year and have also been in talks with the New Jersey DGE over licensing. How is this progressing?
We are at the same point we were about six months ago, building the business and doing the groundwork there to establish our business. Obviously there have been no regulatory changes in the US. California was postponed by one year, and while I would be happy to see something else happen, this fits quite well into our forecasts, as we did not factor in any revenues from the US for 2014-15.
We are already active in the US. We have a partnership with Caesars Interactive Entertainment and a few other licensed operators in New Jersey. So while people see it as a negative that it has been postponed, I actually see it as a positive, as I feel it gives us more time for us to prepare our activities there, to build the teams and the know-how, to do tests where we can, and look at acquisitions in the US, and we now have another year or window to prepare for when it does happen.
As well as EDM, your two recent realmoney gambling acquisitions were in UK and Denmark, which are regulated markets. Can we expect you to focus acquisition activity just on regulated territories from now on?
We are also looking into acquisitions elsewhere, not in prohibited markets, but in countries which are about to regulate, such as the Netherlands and Sweden. In Sweden, it’s quite obvious there will be regulation there in the next year or two. The politicians are fully aligned, with the exception of one. So that’s also a country we are looking at.
I actually see it as a positive California has been postponed, as it gives us more time for us to prepare our activities there, build the teams and know-how, do tests, and look at acquisitions in the US.
Do you agree that investors’ attitude towards the risk of unregulated gambling markets is changing in the wake of the Amaya-Stars deal?
One thing that surprised me about the Amaya deal is that they are a Canadiantraded company. If they were a US company, they would probably have an issue with the grey markets that PokerStars has, with countries like Russia and so on. The UK markets are also OK with that. You see William Hill and Ladbrokes active in greyish markets as well, and there’s nothing wrong with that, according to their investor share base. From our perspective, we take quite a cautious approach when it comes to regulation. As you see, the acquisitions we made were in completely regulated markets, we are also looking to soon-to-beregulated environments, we would never put more funds into acquiring businesses in completely prohibited markets. We are on the safer side of risk. We are already seeing that in the kind of volume we can get in media buys in the regulated environment, and that’s something that’s very encouraging. The more volume there is, the more our know-how in technology comes into play.
What will be your main focus as a business over the next six months or so?
The house broker has just upgraded the forecasts. We feel given the strong start to the H2 that we feel comfortable with that. The trading is good, EDM is our biggest acquisition to date, and it’s going to take some time to kind of bed down and come into the business, but we feel very good about that, because we see social gaming as a very strong growth engine. Of course, it’s not going to replace anything in the real-money gambling area, because traditionally we are a real-money focused business, and we are seeing good growth there. But this is a very welcome acquisition for us. Going forward, the market shouldn’t expect more big acquisitions from us this year. We need some time to digest what we’ve done, but I’m looking very positive to the rest of the year.