Following recent additions to the Games portfolio, we take this opportunity for another deep dive into the new Games business, highlighting the favourable business metrics and showing its enormous potential for ZEAL, once scaled. Here’s our take:

User metrics exceed those of lottery by far: thanks to the repetitive character of Games, the customer journey gives ZEAL much more monetization opportunities, as users can play 24/7 and for mutliple times a day vs. 1-3 days Lottery players need to wait for the next jackpot draw. This is reflected at much higher ARPU (average revenues per user) of currently € 25.82 at Games vs. only € 7.68 at Lottery.

Change in Games KPIs ahead: While the business is still in roll-out, ZEAL is about to add higher billings margin Games to the now 59 games counting portfolio. Hence, we expect changing KPIs as billings margins directly influence the pay-in to billings ratio, the pay-in margin and ultimately ARPU.

Finding the sweet spot: maximizing the ARPU at Games should be one of ZEAL's main target. As it controls the average billings margin (i.e., by changing the Games product mix), it can experiment to some extent, as higher billings margins reduce RTP and thus user activity. By finding the optimal billings margin, the pay-in margin and thus ARPU can be maximized.

Conservative estimates already show promising bottom line effects: According to our current estimates, the new business should account for 12% of group EBITDA in '24 (€ 5m) and for 17% of group EBITDA by FY'26e (€ 11m), based on conservative user growth assumptions (40k by FY'26 vs. 17k in FY'23) and only slight EBITDA margin improvements (50% in FY'26e vs. 42% in FY'23).

Huge potential, once scaled: To asses the impact of the Games business once meaningful user numbers are reached, our sensitiviy analysis shows the enormous potential stemming from Games: Asuming 200k MAUs, an ARPU of € 30 and a 50% EBITDA margin, the annually recurring EBITDA contribution from Games alone could amount to € 36m (vs. € 33m on group level in '23).

In sum, the Games business has the potential to become a significant second pillar of growth and profitability for ZEAL. Hence, we confirm ZEAL's position in the NuWays' AlphaList and  reiterate our BUY recommendation with an unchangend PT of € 51.00, based on DCF.