On Wednesday, ZEAL released staggering Q1 results above expectations with strong sales growth and better than expected profitability. Moreover, ZEAL substantially improved marketing efficiency which drove customer growth to record levels. In detail:

Strong Lottery business: Lottery billings came in better than expected at € 246m, +22% yoy (eNuW: € 234m) and were driven by 4x peak jackpots. Lottery sales grew by 28% yoy to  € 32m (eNuW: € 31m) thanks to the strong billings coupled with a solid billings margin of 13.0%, up 0.9pp yoy (eNuW: 13.2%).

Upbeat Games adoption: Games contributed better than expected with billings of € 31m (eNuW: € 25m) and sales of € 2.2m (eNuW: € 1.9m) driven by further additions to the Games portfolio as well as user adoption with MAUs growing by 22% qoq to 22k (eNuW: 20k). Consequently, the ARPU stood at € 33.6 (vs. € 8.0 at Lottery) highlighting the attractive user economics at Games.

Dynamic top-line: Q1 sales rose by 35% yoy to € 36.1m (eNuW: € 34.8m). Based on an average jackpot development, we expect a slight qoq sales decline in Q2e (eNuW: € 34m; due to less user activity) before the planned expansion in the billings margin to above 15% (currently: 13%) should unfold its posititve effect on sales from Q3e onwards (eNuW: € 38m in Q3e / € 42m in Q4e).

EBITDA much better than expected: Q1 EBITDA came in at € 9.4m, +1% yoy (eNuW: € 5.1m) despite heavy marketing expenses of € 13.4m (eNuW: € 14m), but driven by higher than expected sales and lower than expected indirect costs of € 3.6m (-20% qoq; eNuW: € 5.8m), as the majority of ramp-up costs of the new social lottery will likely be incurred towards the end of the year and not in Q1 and Q2.

Improved marketing efficiency: Costs per Lead decreased by 10% yoy to € 33 (eNuW: € 40), showing that customer acquisiton has become more efficient. In sum, ZEAL accounted for 320k new registrations (+124% yoy; eNuW: 350k) and grew their MAU in Lottery by 21% to 1.33m (eNuW: 1.26m).

Guidance well in reach: Management confirmed the guidance (see bottom right), but based on our revised estimates, we expect a reach at the upper-end of the guidance, due to the improved user base.

Therefore, we reiterate our BUY recommendation as well as ZEAL's position in the NuWays' AlphaList with an increased PT of € 53.00 (old: € 51.00), based on DCF.