Playtech’s just-issued Q4 and Full Year 2015 financial report confirms our exclusive report from yesterday – that its financials division headlined by the Markets.com brand is going through a major restructuring.
Our report had focused on the internal restructuring at Markets.com, including the firing of many sales, retention and customer service employees and the ending of commission-based compensation (in favor of set salaries) for those who remain.
However the Playtech report discusses more the external restructuring – namely, its decision to end relationships with many IBs and affiliates. In its own words, to transition away from indirect revenues from business introducers to focusing on direct activity.
Amidst all the changes, Markets.com saw Revenues drop more than 20% in Q4.
Looking at both the internal and external changes afoot at Markets.com, it is clear that the new overlords at Playtech are taking a much more risk-averse approach to the business. The Playtech report noted that the regulatory backdrop under which Markets.com operates has become increasingly developed, with tighter restrictions and controls imposed on brokers. Examples of this include changes to when trading incentives (i.e. deposit bonuses) can be granted, limiting leverage, enhancing client onboarding requirements, stricter interpretation of procedures and greater regulatory scrutiny in general.
The final quarter of 2015 was quite dynamic for Playtech PLC (LON:PTEC), with the planned acquisitions of Plus500 Ltd (LON:PLUS) and AvaTrade called off, and the company’s financials division being in the process of a major restructuring … These are at least some of the reasons for being interested in the full year 2015 report that Playtech has just published.
We focus on the performance of the Financials unit, which is currently operating under the brand Markets Limited. (Overall, Playtech’s results were fairly well received, with its 2015 Revenues up 38% over 2014 to EUR 630 million, EBITDA up 22% to EUR 252 million, and Net Profit up 8% to EUR 206 million).
The three main points:
- Playtech confirms the changes to the business model of Markets Limited, including the cessation of trading relationships with ‘large business introducers’.
- Revenues at the division fell in the fourth quarter of 2015.
- The unit saw a strong start to 2016.
The financials division which was established after the acquisition of TradeFX (which includes the Markets.com and TopOption brands) in May last year had revenues of EUR 21.8 million in the final quarter of 2015. This is 20.7% lower than the revenues of EUR 27.5 million reported in the third quarter of 2015.
Since being acquired by Playtech in May 2015, Markets Limited generated revenues of EUR 60 million. For the full 2015 year Markets.com had revenues of EUR 90 million (USD $100 million). By comparison, the business which Playtech/Markets.com tried to acquire last year, Plus500, had 2015 revenues of $276 million.
Interestingly, Playtech disclosed that it continues to own 9.9% of Plus500 which was acquired during the offer process. Playtech stated that it and has no immediate plans with respect to this holding.
The number of total active CFD customers grew 30% over 2014, with first time depositors (FTDs) up 25%.
Changes to the business model of Markets Limited
Playtech is improving its business model in an effort to bolster compliance, control and oversight via:
- introducing stricter on-boarding procedures, controls and processes, going beyond industry standards;
- further developing media buying technology, with strong focus on marketing its own trading platform as the main channel for growth;
- focusing on the core brand of markets.com;
- the cessation of trading relationships with large business introducers in respect of the core brand;
- establishment of B2B relationships leveraging on servicing our technology and CRM capabilities, with a strong pipeline for 2016.
In certain jurisdictions, where practicable, Markets introduced its previously contracted business introducers to other regulated businesses where it provides a range of different turnkey B2B services.
As a result of this restructuring, the business is expected to see strong growth in KPIs but total revenue growth in 2016 will be impacted due to the transition away from indirect revenues from business introducers to focusing on direct activity and further expanding B2B relationships. Also, Adjusted EBITDA margin in 2016 will be affected due to the strong focus on investing for future growth in KPIs through increased direct marketing initiatives alongside further investment in media buying technology, compliance systems and marketing.
Alan Jackson, Chairman of Playtech, commented:
“Whilst 2015 was an incredibly busy year for Playtech, our operational performance was stronger than ever, delivering reported revenues up 38% and up 26% on an underlying basis.
“The Gaming division continues to lead the industry and drive our growth. Our pipeline of opportunities continues to be very strong and we expect significant wins in 2016, led by our pioneering omni-channel offering and driven by existing and newly regulated markets. Our newly created Financials division is developing well and we have further improved its business model.
“We have many opportunities for further growth, both organically and through M&A, with active discussions on a number of potential acquisitions in the Gaming division. Should suitable acquisitions not be available, consideration will be given to returning cash to shareholders as we look to maintain an efficient capital structure.
“Taken together, we are confident in strong growth in 2016 and beyond.”
You can view the full report from Playtech by clicking here.