Shares in XLMedia (XLM) plunged by more than a third after the group warned that profits would be knocked by its shift away from “non-core” media activities and increased investment in its higher-margin publishing business. Management expects 2019 revenues to be down by around $30m (£22.5m) and a $6m-$7m dent to adjusted cash profits, which welcome in behind last year's figures.
Publishing constituted around $66m, or 56 per cent, of the group’s top line last year. Here, the digital performance marketing services specialist intends to pursue growth opportunities in North America and to “capitalise” on its presence in the US and Canadian personal finance market. It also plans to spend at least $7m on developing its publishing assets over the next three years in the hope of becoming a leader in the US online gaming market.
On the media front, the company had previously signalled that it was ceasing lower-margin media activities, but it announced it would take an $11m-$13m one-off impairment charge for the year ending December 2018, largely relating to acquired intangible media assets.
Founder and chief executive Ory Weihs noted that the profit decline entailed around $2.5m from the discontinuation of certain media activities (namely games and apps), and $2m-$3m from investment in new assets in the US gambling market and some European markets. The rest stems from operational and tax challenges in some regions.
In June the group lowered revenue and profit guidance, citing regulatory changes including the closure of the Australian online casino market at the end of 2017 and “uncertainty” around the regulatory status of some European markets in 2018.
Still, management reckons that the measures outlined in its latest update will “deliver higher profit margins with much better quality of earnings” in the medium and long term. It plans to maintain a progressive dividend policy, and reiterated its commitment to the $10m share buyback announced in December.
Broker Panmure Gordon has reduced its forecast adjusted cash profits for 2019 by $6.3m, changed its recommendation from 'Buy' to 'Hold' and slashed its target price from 164p to 84p.
