German online lottery operator Zeal Group reported a 44% increase in marketing spending in the first half of 2023, which negatively impacted its earnings.

Zeal reported revenue of €54.8 million in the first half of 2023, an increase of 11% compared to the €49.4 million the company reported in the same period last year.

The Lotto24 operator highlighted that a series of successful marketing campaigns during high jackpot periods are driving the company’s customer acquisition and resulting revenue during this period.

“The growth of our transaction volume in the second quarter of 2023 was almost record-breaking and a whopping 18.8% higher than in the second quarter of 2022 – in this respect we even recorded the second best quarter in the company’s history,” said Jonas Mattsson, CFO of Zeal.

“Strategic growth in the e-commerce environment is becoming increasingly difficult, but we are confident that we will continue to impress the market with our attractive products and diverse marketing campaigns,” he added.

Increased acquisition costs per customer

In the first half of 2023, Zeal reported 349,000 new customers, an increase of 20% compared to the previous year. However, the company experienced higher acquisition costs per registered new customer due to higher media costs due to a competitive business environment.

Therefore, according to the operator, marketing expenditure was 44% higher than in 2022 at €20.0 million, compared to €13.9 million in 2022.

We have a focused marketing strategy and invest disproportionately in high jackpot periods,” said Mattsson. “The short-term decline in earnings in phases of high jackpots is a completely normal development that will weaken again as the financial year progresses.”

The company’s other operating expenses also rose significantly by 29% to €31.6 million.

Rising costs reduce profits

Due to rising costs, which Zeal said was driven by increased investment in customer growth, the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) fell to €13.8 million, compared to €16.4 million last year.

Zeal’s profits also fell sharply in the reporting period, falling by 40% from €9.4 million to €5.6 million.

The company’s FY23 forecast remained stable, with Zeal expecting revenue in the region of €110-120 million for the year.

The operator said it plans to invest “significantly more” in new customer acquisition than in 2022 and expects total marketing spend for the year to be between 34 and 39 million euros.