Last month, Google update its advertisement policies regarding gambling and games, which only allows whitelisted operators to advertise on Google, helping the regulator to battle the illegal lottery market. While impacts for ZEAL are hard to quantify, we nevertheless regard it as positive news.

Effective 25th September 2024, Google only allows companies whitelisted by the GGL (Gemeinsame Glückspielbehörde der Länder, German Gambling authority) to run ads for their offerings. Consequently, companies without a GGL license had their advertisement certification revoked on that day. This also includes gambling aggregation services (such as landing pages), thus also preventing a bypass of the ban.

This not only follows Meta's gambling advertisement policy, which is in place since 2014 and also requires companies to be whitelisted by the GGL, but also closes a gap for illegal competition in ZEAL's most important advertisement channels.

The ad-bans should help the GGL to fight the illegal lottery market in Germany. While existing measures such as IP- and payment blocking against illegal offerings in Germany not only take time, but also need a court decision, are thus not as effective as intended. Therefore, the decision by Google to stop the advertisement does not stop illegal operations, but could prevent further growth of the black market.

The latter is key for the legal market, as uninformed consumers, especially those that switch from offline lottery to online, cannot differentiate at first sight whether a provider is legal or not. This implies, that now the legal online lottery providers (ZEAL and the federal state's lottery operators landing page lotto.de)  are competing against each other at online marketing channels, such as Google.

A potential positive impact for ZEAL and/or the legal lottery market is hard to quantify as neither the black market nor their marketing budgets are known, however the expected absence of illegal competition on Google could lead to falling customer acquisitions costs, as the pay-per-click advertising auction for certain buzzwords should have less bidders, in our view. This bodes especially well for ZEAL, which recorded new records in marketing efficiency earlier this year.

Against this backdrop, we reiterate our BUY recommendation with an unchanged PT of € 54.00, based on DCF.