Short-term pain, long-term gain: What the future holds for Kindred Group post-Q1 2022

And as the dust settles, hysteria subsides and relaxation ensues. Kindred Group’s Q1 2022 results made for uneasy viewing, peering through fingers like looking at a particular cringe-inducing am-dram performance at a local church. A headline revenue decline of 30% year-on-year (YoY) catalysed by the operator’s absence from the Netherlands to £246.7m was coupled by a steep 77% drop in underlying EBITDA falling from £106m in Q1 2021 to £24.5m.

But this wasn’t a surprise, with Kindred weeks earlier warning the market of the incoming shortcomings. The operator’s share price managed to survive an initial major hit on results day, falling to SEK74.84 and has since recovered and stands at SEK96.58.

There are, of course, concerns for Kindred. The firm conceded its absence from the Netherlands has been more severe than it initially anticipated, while it hasn’t been able to cash in on the US gold rush as of yet and a 24% YoY decline in active customers to 1.38 million is another hammer blow.

There are, of course, hopes for Kindred. It expects to enter the Netherlands shortly having submitted its licence application on 29 November 2021 with the six-month waiting window nearing its end and CEO Henrik Tjärnström noting he expects the licence award to come during Q2.

Tjärnström remained coy on the investor call following the results, not to be drawn into a debate over lost time to existing licence holders in the Netherlands, instead electing to focus on Kindred’s own operations.

He said: “We will start from zero in the Dutch market and that is what we have planned for, so there is nothing unusual there. We will see gradual development throughout the year, but it is too early to speculate on an outcome until we have the licence and until we are back and can see tangible results.”

Tjärnström also distanced himself from touching on specific outcomes from the market, instead noting Q2 would bring about a tough comparative period for the operator following last year’s Euro 2020 tournament.

He continued: “We are working hard on preparation but we look forward to a date when we go live and can come back to you with some more effects that we are seeing in the market. But out of respect for the ongoing process, we don’t want to speculate until we are there.”

Affordability aches 

Anticipated future joy in the recently rebirthed Netherlands is encouraging, regardless of the need to play catch-up to launch-date licence holders but the looming white paper into the Gambling Act 2005 in the UK has already seen Kindred stare into the alternate universe.

Affordability checks have been one of many hot topics around the debate, from the paltry £100 monthly limit suggestion by the Social Market Foundation being quashed by Gambling Minister Chris Philp through to the potential rise of illegal WhatsApp bookmakers should measures be put in place.

Aiming to get ahead of the game, Tjärnström revealed the operator had already begun its own in-house affordability measurements in a move that could be seen as ripping the plaster off rather than painstakingly eking it from one’s skin.

Tjärnström noted the “various initiatives” Kindred had put in place so far in regard to affordability but has seen pushback from “higher value segments” of the business, painting a grim outlook for not just Kindred, but other operators in the UK in the near future.

He said: “We’ve gone over and above what is required. But it’s always a question if it’s enough.

“What we’ve done has especially affected the higher value segments of the business and with the tools that we have at our disposal to estimate affordability and basically requiring questions being asked to the customers, [a] large part of the customer [base] and especially in the high-net-worth segment are reluctant to provide the documents necessary to clear them,” he added.

Reluctance is in theory manageable. Operators could coax high earners out of their shells, or so firms would like to believe to keep coffers kosher. In this reality, and an impending one for the rest of the industry, things are about to change.

Tjärnström said: “As a consequence, we are unable to accept that kind of business. That’s the biggest impact we’ve seen during the quarter and especially in the high value segment.” Fears over the rise of the black market in the UK are both greatly exaggerated and greatly underestimated at the same time. But, these comments from Tjärnström will only further stoke flames of frustration as other operators face up to the requirements and segments of the consumer base avoiding firms being privy to their privacy.

Marketing madness 

From one of the oldest markets to one of the newest, Kindred’s performance in the US has been less than spectacular as the big three in the shape of FanDuel, DraftKings and BetMGM continue to dominate the space, albeit while burning through dollars at a rate of knots.

The Stockholm-listed firm posted a 26% YoY decline in North American revenue to £5.6m while EBITDA was also severely impacted, with the region returning a negative £9.1m in Q1 2022 compared to a negative £6.3m in 2021.

With the operator currently live in six online US states, plus having gone live in Ontario, there is a clear commitment to the region, but the future seems unclear. Tjärnström lashed out at “unsustainable marketing and customer incentives” from competitors, especially in the US, but the pull factor is hard to resist, stuck in a tractor beam of future glory.

Once again, we come back to the word reluctance. Tjärnström, while bashing fellow firms for crazy marketing costs, is himself part of the picture. The US sports betting scene does not allow for working in silos. There is a sense of collective knowledge of how things run. It makes it incredibly difficult to deter from this path and Kindred is now facing this as other operators carve out greater market share.

Tjärnström said: “We’re working hard on optimising our investment and the return we are getting. We’ve scaled back on investments, and not participating at the bleeding edge of these marketing and customer incentive behaviours that we’ve seen over the last years in the US market. We don’t deem them to be sustainable.”

The disapproving tone may well appease penny-pinchers but there has to be a fear of being left behind. Slow and steady did win the race but the tortoise and the hare didn’t live in ultra-capitalist US of A, baby. Murmurs exist, even over bet365, for failing to make a definitive crack at the US despite its international and historical pedigree.

However, Tjärnström concedes a degree of participation is required, lest Unibet be forgotten entirely.

He continued: “We’re focusing our fundamentals, reducing our offers and marketing to some extent, but we’re still concentrating more on investments in fewer select states, and then scaling up.

“As we add another state, and we are in the investment phase, the overall investment will increase. And that is, again, done for the longer-term benefits. So, it’s an inevitable investment that we need to do short term for long-term benefit.”

Short term and long term need to work in tandem for Kindred moving forwards. The paramount importance of leading a charge when it returns to the Netherlands cannot be understated, while the tea leaves regarding high rollers in the UK are both short-term challenges that need to be faced head on.

The future of the US remains unclear but a commitment to spend, albeit smaller than its rivals, shows Kindred’s aspirations to make a dent stateside remain. There also long-term aspirations with development of the Kindred Sportsbook Platform, due to go live in 2026.

“While this temporary top-line pressure reduces our profitability in the short term, we maintain a very positive long-term view on the return from investments in our tech platform and strategic projects,” Tjärnström mused in his final remarks last Thursday.

And as the dust settles, hysteria subsides and relaxation ensues, until Q2 2022 results day, of course.