Interested in other companies? See the latest comments on Asmodee and Embracer Group.

Downside Risk, Stay Cautious

• BETCO announced a reversed profit warning on February 6th, causing the share price to soar. However, we question whether the “Partner Publishing” issue is truly resolved.

• We believe it is likely that “Partners” still exist, representing a significant portion of Publishing revenue; to keep them “hidden,” non-compliant tactics in violation of Google’s spam policy are utilized.

• We estimate that around 20% of Publishing EBITDA for 2025 will be tied to Partners and should be valued close to zero.

• Using fairly lofty consensus EBITDA estimates for 2025, our SOTP valuation suggests a price of 86 SEK per share, approximately 25% lower than BETCO's current trading price. We urge caution, as the risks presently outweigh the potential, at least in our opinion. 

Increased guidance for 2024

On February 6th, Better Collective (BETCO) sent out a reversed profit warning for Q4’24, with preliminary Q4 numbers exceeding their full-year guidance.

As readers might remember, we have had a negative view of BETCO's share since May last year. At that time, we thought the valuation did not reflect the inherent Google risks that threatened BETCO’s significant partner publishing. If you need a refresher on that, check it out here. 

This is what BETCO sent out:

The share price immediately jumped about 14% upon the announcement and has since traded between SEK 110 and SEK 114.

The fear of slower growth is not over.

We find that the slowed growth rate and, in particular, the lack of true organic growth during the past year have affected BETCO's valuation. We believe this is a direct effect of the partner-content crackdown on the affiliate industry.

The number of NDCs sent in Q3 dropped to 391k from 501k in Q2. The NDC trend is a leading indicator of revenue development, as BETCO needs to continue sending new clients to its partners. Revenue does not react directly, as the company has a “stockpile” of revenue share clients sent from earlier periods. However, most of these will eventually churn.

From the Q3’24 report, the company stated the following:

We never had a true measure of how large the partner business was; BETCO was not directly transparent on that for obvious reasons. The only hard number we have is that partnerships generated 38,000 NDCs in Q2’21, which was 20% of total NDCs, only in the first “breakthrough” quarter.

Since then, partnerships have been quoted multiple times as the growth driver. So, before the Google policy update, partner sites likely accounted for a large part of Publishing revenue. You can find our estimates for the segment further down in this note.

What we do know, however, is that the partner revenue has affected the cost level of the publishing segment and the “direct costs” as a whole. This is due to the revenue split between partners, which we know from industry sources most often is a 50/50 split.

Things do not add up..

Suppose the revenue in Q3 actually moved from partners to BETCO’s own sites. In that case, the Publishing segment should see a clear profitability expansion, and the Group’s gross profit margin should increase. An increase in Paid media share can neglect the effect on the gross profit, but paid media had the same share as in Q1, with a flat gross margin. 

We find it strange that we have not seen a shift in cost levels in relation to revenue if all partner revenue has been shifted to their own sites.

Q1 ’21 gives a good example, as it was before the partner breakthrough. At that point, the cost in the Publishing segment was 49% of revenue. If an increasing part of the revenue is generated through BETCO’s sites, then we should likely see a % cost level closer to 50% in Q3; that was not the case.

We find it more likely that BETCO has lost some revenue due to traffic declines. Gains in their own brands did not offset this; instead, they have found ways to continue with partner publishing.

Media Partnerships serve a growth role, as stated by the CEO

Well, according to the CEO letter for the Q3 ’24 reports, Media Partnerships are still important for future growth:

We do not understand this, as it clearly violates Google’s current spam policy rules. Here is what Google states:

To our surprise, BETCO has removed the partner section of their website. It used to be found here: https://bettercollective.com/media-partnership/

But it can be viewed here in the Wayback machine: https://web.archive.org/web/20240301145136/https://bettercollective.com/media-partnership/

The last capture we can find of it was from March 2024, so it seems like they closed it quite quickly despite partner deals serving a “growth role in the operation.” 

One of the big partner sites was the Telegraph betting section. It was removed from the Google index but has now started publishing new content frequently. Previously, it was said to be powered by “Bettingexpert” (BETCO’s brand). Now, it states that the Telegraph Media Group produces the content.

The type of content the two “authors” create is similar to when BETCO powered the site, but no mention of “Casion” like they used to.

Maybe the two authors work like machines (it’s a lot of content), but to us, it just looks like they put their names on the posts, so Google will not understand that it is actually third-party content. If this practice is used with the Telegraph, other partnership sites like Goal.com are likely doing the same.

New article published in February 2025

Old article published in late 2023

If we check the links on the site, they seem to use the same link structure as before with a “goto”, except it’s not run through the bettingexpert subdomain (for obvious reasons). If bettingexpert is no longer included in producing this content, then we find it weird that the “goto” part is still in use. It can be just a habit, but still weird.

“new”: https://betting.telegraph.co.uk/goto/bet365/?profile=Telegraph&subprofile=freebet

“old”: https://telegraph.bettingexpert.com/goto/bet365-welcome-offer-sign-up-review

Partner publishing is still in practice…

We find that a few things do not add up:

• BETCO states: That Media Partnerships will still be an essential growth driver.

  • But BETCO has removed its partner website.

  • And content is produced “in-house” by The Telegraph that looks very similar to when Bettingexpert produced it.

  • And the links that the Telegraph use have a similar structure as before.

• BETCO States: That gains in their own brands have offset the revenue drop from partners.

  • However, the cost levels have remained the same, while clearly, the gross profit margin on partner revenue is much lower.

  • And NDC’s saw a sharp decline in Q3.

We find that “partner” revenue now is just “hidden” in trying to trick Google. It might work for a while, but we deem it risky, so we believe earnings from the Partner Publishing part should be valued at close to zero due to the significant Google risks. If there are not actively generating more Parter revenue, then it means that they only have the revenue-share deals in place, which will slowly churn away. In that case, the value of those chas-flows should also be low, as they are finite and will end.

Then the question is, how much of the earnings comes from partner sites?

But how large could the Partner Publishing part be?

As most know, when done correctly, affiliate marketing can be a highly cash-flow generative business with extreme margins. Google can sweep away those margins, but the margins are very high when it works.

Take one of Better Collective’s main competitors (private company) as an example, Leadstar Media AB. They regularly produce margins of around 80% (yes, I know, that is insane numbers)

We also know that before the partner breakthrough, the Publishing segment regularly produced EBITDA margins of around 50%. Since then, many acquisitions might have affected the margin level mix, but we feel that an EBITDA margin of 45% is a likely number for the “own Publishing sites,” but we will use 40% to be on the safe side.

If we then look at the segment's LTM figures and assume the 40% EBITDA margin, we can estimate a likely level for the Partner Publishing revenue.

Different scenarios

When doing these scenario experiments, we find that the Partner part of Publishing is likely around 40% of the total, with an EBITDA margin of around 20%. This adds up, as the Partner part has lower margins due to the revenue split but similar OPEX needs.

The market expects a clear rebound in earnings, but what about the quality of those earnings?

The market (or analysts) expects a rebound in earnings, likely driven by the EUR 50m annual cost savings project announced. 

But the big question for us is the quality of these earnings, whether they are, in fact, “hidden” Partner Publishing income. We have used consensus estimates for 2025E and, with some assumptions, have come up with a likely split between Partner Publishing, Own Publishing, and Paid Media.

The value of BETCO

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