Telematic Interactive – 2025 Q1 individual review – Sales plateau reached, profitability takes another hit

Sales plateau reached, profitability takes another hit

Q1 Individual Results

• Telematic Interactive Bulgaria AD reported 8% revenue growth for Q1 2025 reaching BGN 30.9mln. Casino revenues take the lion’s share of BGN 27.6mln or 89.3% of the total operational revenues after 1.8% growth. Sports-betting reached BGN 3.3mln, which marked an increase of 38.5%. The account is 10.5% of the operational revenues. Тhe growth was due the ability to sustain the levels of 2024 and the implementation of the new betting platform. While it is clear that casino games have hit a plateau, Sportsbetting continues to increase its importance in the overall revenue mix and offers the needed growth opportunities.
• The main reason behind the increasing revenues is the increased average income per client, which went from BGN 99 to BGN 110. The conversion rate reached 76%, from 68% last year, due to marketing strategies, which significantly increased the number of the new registrations in mid 2024. In the same time, the product itself was improved significantly – interface, user experience, functionalities and software optimizations.
• The churn rate grew to 11% which is attributable to the effect of aggressive seasonal campaigns, which attract, among others, less active clients. Still, the churn rate appears to be below the industry average, which is an indication of the high efficiency of TIB’s operations. The other side of the story is that this is an indication of the plateau that we have been warning about – if a company is inefficient, there is a significant upside potential. If it is already very effective, then the upside potential from process improvement is not there.
• The domestic vs international sales breakdown, which we have been mentioning in previous reports that is needed, is still not present. The only mention is that the share of clients outside Bulgaria is insignificant. This indicates that these are sporadic clients, which are definitely not the result of a targeted marketing campaign, i.e. their Peru expansion is still not bearing any fruits. It is worth mentioning that these efforts, as per their indications in the financial reports, have been active for more than 18 months.
• OPEX increased more than sales – by 6.9% to BGN 26.4 mln. The largest contributor is Personnel services, which jumped more than 58% to BGN 3.3mln. They are the result of the increased headcount and the raised salaries. The push for Peru, where the setup for a studio for live games also contributed to it.
• The second largest contributor was External services, increasing just 1.9%, but still reaching BGN 15.8mln. In that, Marketing (39% of the account) contributed the most when it increased 13% to BGN 6.2mln. Suppliers of games content rose just 3.3% to BGN 5.6mln and bank fees dropped 8% to BGN 2.7mln.
• Profitability suffered from the above-mentioned developments. EBIT dropped 10% to BGN 4.5mln, EBITDA 9.2% to BGN 4.7mln and Net Profit 10.5% to BGN 4mln. As a result, the Net Margin decreased from 15.3% to 13%.
• Current liabilities increased in Q1 2025 by 2.6% to BGN 16.4mln. The largest contributors were the increase of the liabilities for dividends (24% to BGN 4.5mln), income tax liabilities (76% to BGN 1mln) and liabilities to subsidiaries (176% to BGN 0.5mln).
• The company distributed a dividend on 03.04.2025 in the amount of BGN 0.35 per share, which alone would be 1.6% dividend yield as per the price at the time (BGN 21.80). They, however, distribute dividends up to 4 times a year, which means that the figure will increase several times in 2025.

• Commentary:

   

  It is clear that the moment that we have been talking about in previous reports, the reaching of a sales plateau, has been reached. It is understood that when a company operates in a market, it will reach such a plateau because of a) total number of clients and b) the level of efficiency it has to extract the demand from those clients. Telematic Interactive has been taking many correct steps building the company in the last couple of years – the right marketing campaigns, proper CRM and operational systems and most importantly – talented staff to utilize all this potential.

  The top, however, has been reached. At this point, operational costs will be increasing more than the revenues and it only follows that the Net Profit will suffer. So what would be the point to grow further? Clearly, this is the result with their main line – casino games. Sports-betting is the line, which can provide a breath of fresh air, but it will require dedicated focus in terms of personnel and management. Casino games, operating very efficiently, increased 1.8% and it is obvious that future increases can be of that magnitude, not the game changing increases from the past. Efficiency can’t be improved dramatically since it is already very high and the number of clients would be very expensive to increase too. Sports-betting, on the other hand, is still in the earlier stages of development.

  This leaves us with the already discussed Peru option. In Q3 2023 they mentioned in their reports that their expectations were to have the efforts there increased. Unfortunately, it has been 18 months since that point and we still do not see international revenues, which are significant to report. This raises eyebrows as to whether those plans are implemented with the full faith of the management or if the management is using the right talent for it. The rise of the stock value with 46% over the period and the steady and rich dividend dividend policy has made many investors complacent about the future of the company.

  All in all, this is still a superior company with its high dividend yield and stock stability. But there are clear warning signs for the future. Increasing the revenues at this point on the existing market (Bulgaria) would be at the cost of Net Profits, which would automatically mean less dividends, leading to the conclusion that one of the main selling points to investors would be gone.

  It is now more clear than ever that international expansion is needed. A strategic move would be a market with population offering at least double or triple the total disposable income of Bulgaria. A market offering 10% of that (like the Macedonia project), is likely to incur higher expenses and bring down profitability even more. A larger project would have greater initial costs, but its potential can have strategic importance and offset those costs many times after the initial period.

Full article can be read here.