Jumbo share price slips despite revenue growing 18%

Why wasn't Jumbo able to get investors excited today?

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Key points

  • The Jumbo Interactive share price has slipped slightly to $14.50 amid the release of its FY23 first-half results
  • Earnings growth was moderate compared to historical rates as lottery retailing service fee takes a cut
  • Cost growth is forecast to come in below FY22's high rate

The Jumbo Interactive Ltd (ASX: JIN) share price is worse for wear on Friday as investors assess the company's first-half numbers.

In afternoon trade, shares in the online lottery provider are down 0.6% to $14.50. For comparison, the S&P/ASX 200 Index (ASX: XJO) is inching 0.24% higher today, buoyed by exceptional showings among the tech, industrials, and real estate sectors.

Based on the market's reaction, it seems Jumbo's results left more to be desired.

Jumbo share price lowers on sluggish earnings

For Jumbo Interactive, the number of large jackpots during the financial period has a large bearing on the company's performance. For the six months ending December 2022, 23 large Powerball/OzLotto jackpots occurred — matching that of the prior corresponding period.

While the company was able to recognise increased revenue from its lottery retailing segment (up 7%), EBITDA fell 3% due to the step-up in service payable to The Lottery Corporation Ltd (ASX: TLC).

Meanwhile, the other two areas of the Jumbo business — software as a service (SaaS) and managed services — delivered stronger growth. The SaaS segment recorded ~10% underlying revenue growth, while underlying EBITDA lifted 7.8%.

What else happened in the first half?

Jumbo successfully completed its acquisition of StarVale in the first half.

The company places another UK-based feather in Jumbo's lottery management services cap for a total consideration of $40.5 million. Yet, the market reacted negatively to the announcement of its completion on 2 November 2022, pushing the Jumbo share price 1.2% lower.

What did management say?

CEO and founder Mike Veverka commended the strength of the Jumbo platform during the record $160 million Powerball draw, saying:

Our platform continues to perform exceptionally well, with 100% uptime for the $160 million Powerball and several records broken in terms of signups, checkouts, and tickets sold per second. This performance is a testament to the work we've done in building a best-in-class lottery platform.

In addition, Veverka spoke highly of the potential contained in the company's recent acquisitions.

We continue to be impressed by the quality and growth potential of these businesses, and the integration process is now well underway. The strength of our balance sheet, strong cash generation profile and debt headroom provide significant flexibility to support further growth.

What's next?

For those most enthralled with the declared dividend, the 'what's next?' for you is when are the record and payment dates.

According to the release, the record date is 3 March — which means you'll need to purchase shares a couple of days prior to allow for settlement. Following that, the 23 cents per share dividend will be paid out to eligible shareholders on 17 March.

On a longer timeline, Jumbo provided some guidance for FY23, mostly relating to costs and margins.

Management expects the cost of sales on its lottery retailing to be higher for the year due to the service fee to The Lottery Corporation. Whereas, costs excluding lottery retailing are anticipated to moderate to an increase of 16% to 18% from ~33% in FY22.

Finally, the company's EBITDA margin — when excluding Stride and StarVale — is expected to be toward the upper bound of the original 48% to 50% guidance.

Jumbo Interactive share price snapshot

It's been a bumpy old ride for Jumbo shareholders over the last year. Though, the overall trend has been downwards. However, anyone that pulled the trigger between September and December 2022 is still likely in the green.

The Jumbo Interactive share price is down 18.5% compared to a year ago. Based on the current share price, the company trades on a price-to-earnings (P/E) ratio of 29 times.

Motley Fool contributor Mitchell Lawler has positions in Jumbo Interactive. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Jumbo Interactive. The Motley Fool Australia has recommended Jumbo Interactive. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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