Jumbo shares tank as margin pressures poised to return in FY23

Jumbo Interactive (ASX: JIN) said it will deliver strong FY22 earnings growth amid an ongoing shift to digital lotteries and finding its groove again with regular jackpots.

The seemingly positive preliminary FY22 results announcement was met with rather aggressive selling, with the company's stock down -12% to a 14 month low in early trade.

Earnings at a glance

• Total transaction volumes of $660.1m, up 36%

• Revenue of $103.8m, up 27%

• Earnings margin of 52%, down 6.1 percentage points

• Underlying net profit of $31.6m, up 16%

“We are very pleased with the strong growth that we have achieved in FY22 off the back of an improved jackpot cycle,” said CEO Mike Veverka.

FY23 margin pressure

Jumbo did not provide any earnings expectations for FY23, but announced a series of cost-side factors, expected to chip away at margins.

• Lottery Corp (ASX: TLC) service fee will increase to 3.5% for tickets purchased (from 2.5% in FY22)

• Marketing costs expected to be 1.5% to 2.0% of lottery total transaction volumes

• Underlying earnings margins to be in the range of 48% to 50% (down from 52% in FY22)

The potential margin pressures could be the catalyst behind the knee jerk selloff on Friday.

Interestingly, the service fee paid to the Lottery Corp has been public information since July 2020. The service fee on ticket purchases began at 1.5% in FY21 and would increase to 2.5% in FY22, 3.5% in FY23 and 4.65% in FY24.

Jumbo Interactive 12-month price chart