Last week, we hosted ZEAL at the European MidCap Conference in Paris where we sat down with the company for some insightful meetings. Here are the key takeaways:

Strong market share gains during peak jackpots: during the strong jackpot phases in Q1, ZEAL's brokerage business has noted a strong jump in market share. While this is not disclosed and exact data will be available in Jan'25, our preliminary calculations indicate ZEAL's market share at around 43-44% (vs. 41.4% in FY'23).

Market trend tailwinds: Within the lottery brokerage business, growth is stemming from (1) a rising online penetration, which still stands at a mere 24% and (2) an increase in market share. In both cases, it is crucial for ZEAL to acquire those customers that are switching from offline to online instead of trying to acquire customers that are already onboarded in the online channel of the state lottery (lotto.de). Last year's decision to focus more in brand marketing, additional to performance marketing, thus clearly pays off, visible in reduced CPLs and high user intake this year.

Additional growth beyond the state lottery: The most recent additions to ZEAL's offering (Games and Dream House Raffle) are not only serving ZEAL's cross-selling and lock-in of customers, but are also completely outside of the state-lottery (brokerage business), thus reducing ZEAL's dependency on a volatile jackpot environment. Despite being new and thus still small compared to the brokerage business, both show great potentials and come in with higher ARPUs and margins, improving the overall mix.

Strong operating leverage: While in FY'24e, the operating leverage effect should be subdued temporarily by an increase of personnel expenses (currently: 240 FTEs vs. an average of 172 in FY'23) for the successfull implementation of new products (i.e. Games, Dream House Raffle, etc.), the level show its full effect into FY'25e, where strong top-line growth meets a more constant cost base and thus rising EBITDA margins.

All in all, ZEAL is well on track to increase its user base while also increasing customer monetization at the same time, leading to an ever growing CLTV for ZEAL's customer base. Therefore, we reiterate our BUY recommendation and ZEAL's position in our AlphaList with unchanged PT of € 54.00, based on DCF.