For NetEnt, Licensee Deals, Forex Tailwinds Driving Growth

9 February 2009
With 38 licensing agreements signed in two years, it's no wonder that Net Entertainment A.B. is growing -- and fast.

The Stockholm company, whose core product is a casino software solution called CasinoModule, turned in a strong fourth-quarter performance Friday. Revenue for the three months ended Dec. 31 was 61.6 million Swedish kronor -- about $7.6 million -- up 71 percent over last year.

Operating profits were up 100 percent to 30.5 million Swedish kronor on a 49.1 percent margin.

NetEnt inked 20 licensees in 2008, five of which went live in the fourth quarter. To keep its pipeline healthy, the company said that a number of licensing agreements with partners failing to meet minimum income requirements were cancelled.

"I don't know where all the licensees are coming from!" joked Simon J. Holliday, the director of H2 Gambling Capital. "There still seems to be a strong appetite for online gaming, as many entrepreneurs still perceive it as a growth area when other parts of the economy are collapsing."

Relative to the European I-gaming industry at large, smaller Scandinavian software suppliers like NetEnt and Entraction Holding A.B. appear to be particularly resilient amid the downturn. (Last quarter, Entraction posted revenue of 86.2 million Swedish kronor, up 51.4 percent against the comparable period in 2007.)

"In certain markets where the economy is particularly bad, growth is becoming hard to find," Mr. Holliday said in an e-mail Monday. "It's all about which markets you are in and how many new quality licensees you can attract."

Currency fluctuations -- now the bane of firms that report in United States dollars but take deposits in other currencies -- were favorable to the company's top-line result. During the quarter, roughly 14 percent of growth was attributable to positive forex movements, but the primary growth driver, it said, was an uptick in customers playing at its licensees.

The company estimated on recent financial statements that it controls around 10 percent of the online casino market, and identified Playtech Ltd., Microgaming Software Systems Ltd. and CryptoLogic Ltd. as competitors.

For the full year, revenue was up 56 percent to 204.6 million Swedish kronor. Operating profits were up 74 percent to 87.8 million on a margin of 42.7 percent.

"Our customers and shareholders can be pleased with our strong growth -- and it shows no signs of slowing down," Johan Öhman, the company's chief executive, said in Friday's results statement.

NetEnt's annual report is due out April 3, 2009.

Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.