MAG Interactive AB (publ)

Hello, welcome to the Q3 report for MAG Interactive. So we're going to talk about March, April and May today. And here to present is myself, Daniel Hasselberg, CEO of MAG. And me, Magnus, CFO. And as usual, before we go into the highlights of the report, reminding you that we have a Q&A session at the end and also we'll take questions on Twitter during the day and you're going to get some information about to reach us on Twitter and a couple of words about MAG before we dive into things. So we are a mobile games developer, started here in Stockholm 10 years ago. Now we have one studio here in Stockholm with about 65 people and we are about 20 people in Brighton in the UK as well. And over these 10 years we have reached more than 250 million downloads and Our focus is basically North America and Western Europe, or that's where we see the biggest traction for our games to date. We are a free-to-play developer, which means that we are working with this kind of crossroads of creativity and data. So building really fun, engaging games, and then we use data to kind of optimize product experiences. And also, of course, in the performance marketing part of the business, it's really important to be on top of all things data related. So we have some really good analysts and a lot of good tools we've developed over the years to be able to do that. And since we started, we have launched a number of games. I'd say average maybe one game a year. So it ends up being a really strong live portfolio of games. We have more than 2 million daily active players. It's a very steady number for us. We have more than 1 million hours of gameplay being played every day, something we're very proud of. So it's not only high volumes of downloads and players, it's also very high engagement. And the portfolio is kind of split between single player and multiplayer games. But the focus of the last two years has been on kind of doubling down on multiplayer, both existing ones and building new multiplayer games. And today we also want to talk a bit about how we view our product portfolio in terms of where are the different products in their life cycle. So we split this up into kind of four parts, new games, growth games, evergreens and catalog. And new games, obviously, that's both all the guys are working on the games you haven't seen yet, but then the games that are out there also generating revenue so that we have new Quistio, which is kind of almost in the growth part now. And we have made a bit of a dotted arrow here from old QuizDuel to new QuizDuel. And that is to show audience moving from one game to the other. And that kind of cross-promotion of players will push new QuizDuel up into the growth part of this chart. And in the growth chart, we have games that have significant revenue for the company and also significant growth potential. That's basically how we define that area. And then of course we have the Evergreens and the Catalogue games.

Exactly, so on the right hand side where the Evergreens and Catalogue are, we have the mature games that's been around for quite a few years. On the upper half, the Evergreens, is where we have the more significant revenue per game, and we find QuizDuel, Russell and World Brain. And these are games that have really good volume, as I said, and good margins, so we could make good profit out of each game there. Usually also, for the multiplayer part of this, we have a situation where the audience is actually the content, so they're relatively easy to maintain and run. But we continue to invest in these games, and we continue to launch the updates. For example, Russ had recently had major upgrades to himself. World Brain is also in that portfolio, part of the portfolio where we have higher revenues, slightly more content heavy since we have to create content for users on an ongoing basis, a single player and level based game.

I think the amazing part with that part of the portfolio is kind of there is really hard to see an end to this. We've seen games being out for seven, eight years and there's no sign of the games going away. I don't think anyone in the free-to-play space knows the lifetime of a game yet. It might be 15 years, it might be longer, who knows? At least more than eight years, that's for sure.

And in the lower part of this chart we have the catalogue games, which is lower revenue with otherwise the same logic. They've been around for a long time and they will stick with us for many more years and continue to deliver contribution to the company.

Yeah, so I think this is a pretty good overview. I'm very happy to see that we have games in all parts of this chart. So new up-and-comers, the growth games and then the very stable games with high profit margins. So moving on to some of the key events during this period. So again, this is March, April and May. WordC's growth is of course a highlight for us. This is a game we talked about last report as well, that it's now out live globally and we're learning more about the game in terms of game KPIs. You see how the marketing works and Q3 has really been a growth quarter for WordC. So on the back of these very high ARP DAOs and strong KPIs, we've been able to accelerate user acquisition. So that's one of the biggest games now already in the portfolio in terms of revenue. New QuizDuel is out live now since early May. We've been gradually rolling out in more and more markets and globally live in May. So that's a big deal for us, of course. The biggest game we have in terms of active players is QuizDuel. So kind of optimizing that player base is a big deal for us. And then we have continued pandemic effects. We describe it that way because in the Q2 report, we actually talked a bit about March due to the circumstances. And as we mentioned back then, we had a huge influx of new players. When markets went into lockdown, like Italy, France, Germany, we saw these install spikes in end of March. And that of course turns into daily actives and monthly active users. And that brought us up to more than two and a half million daily actives. So that was end of March. And I think we saw that peak in sometime early April. And then kind of installs, those kind of organic boosts of installs normalized during this quarter. And then daily actives kind of settling down a bit because that's how kind of retention curves look. But a very good boost to our business for sure. But then when speaking about the pandemic, of course, it's been good for the business of MAG, but it's of course a huge negative deal for the world in general and for MAG as well. So we have offices here in Stockholm, in Sweden, and we have in the UK, which are kind of two of the worst hit countries in Europe in terms of COVID-19. So this remains a top priority for us to make sure we act in a good way. And we remain remote first, which means that the majority of people work from their homes. Yeah.

Yeah. That's what's important to make sure that works. But it's also been number one for us to sort of take care of ourselves, our employees and the company, and also look outside of the company to see what we can do to contribute. Internally, it's been about... launching surveys and make sure people have what they need to work from home and everything. And externally, we really try to figure out how we can affect the world or help the world in society from our position that we have.

Yeah. So part of that has been being part of an industry-wide initiative called Playing Apart Together. So that's been an initiative to basically reach out to the players and show that you care and try to help them in a stressful situation. So it's been great to see each of the teams at MAG have really taken part in this and done different kinds of events in their games, but both kind of Russell, World Domination, World Brain Awards, they have all done kind of World Brain COVID related events and talk to the community and try to show that we're here for them. And interacting with your player community is always important to build better games and engage the community, of course, but it felt extra important during this time. Yes, so let's talk a bit about the outcome business-wise from this quarter.

Exactly, so we'll have a quick dive down into the numbers. Starting out, of course, as always, with net sales, which is also, I guess, a highlight of the report, with 34% up year-over-year, so going from 48% to 65%. And a lot of the growth here comes from QuizDuel and Wordsy. And we also have an effect from the pandemic situation, as we mentioned. And it's nice to note that we mentioned before that we have like two main areas to grow the business. One is improving the KPIs for the existing user base, which is relatively stable. And of course, launching new games. And here we have both contributing. And we'll come back to that also in our discussion in a second. Looking at the marketing of the user acquisition, we're quite happy to note that we're back to levels where we would look to be for a while. 26 million spent in the quarter. That's up from 16 the year before, but it's also up from 14 in Q2. So sequentially, it's quite a dramatic change. And all of that connected to WorldZ, our newest game in the portfolio. We take that with us into the contribution discussion where we filed a historically strong contribution of 31 million SEC. That's up from 28 in the last same quarter last year. Normally, when we have such a big increase in the UA in a short period of time, we would push down our profitability metrics we would hurt the contribution as well as EBITDA but with the organic growth we have in QuizDuel in the quarter we're counteracting that and balancing out so we're landing contribution on a sort of strong level.

I think it's a good thing you point out here that these kind of two growth pillars and being able to to expand on user acquisition is a really good sign for us as a business that we have games we can support with this much user acquisition.

We'll have a quick look also on our other KPIs, MAU, DAO, and ARPDAU. Starting out with MAU, and MAU is really our audience. Those are the days that come in on a monthly basis, and that's pretty much the users. And we're going from 7.3 to 8.2 million year-over-years. We're adding almost a million users compared to last year. We're also adding 1.5 million between Q2 and Q3, so that shows the influx of users during the quarter compared to what we had in the previous quarter. A lot connected to the pandemic, but also, of course, to growing game. Now, if you look at DAO, the effect is slightly smaller. We go from 2.2 million last year to 2.4. We already mentioned that we had a peak during the pandemic, the lockdowns of countries. And the peak was beginning of April and since then a bit of fade out of those audiences as expected. And the average is 2.4 for the quarter. Look at ARPDAU, as we've also seen before, we have a sort of a cross-portfolio improvement of ARPDAU in all the multiplayer games, both the old ones and of course also adding a new game with Wurtzi, with stronger than average ARPDAU, or significantly stronger than average ARPDAU. Not a huge user base yet, but at least they're contributing to add to the increasing ARPDAU cross-portfolio.

sure and and then coming back to this transitioning to to focus on multiplayer so if you follow the company for a while you've seen this picture where we kind of separate multiplayer and single player revenue so the pink parts here are the multiplayer revenues that have shown a really nice growth over the last seven quarters and here we also kind of put in ARPDAU in the same picture to show the correlation here between revenue growth and ARPDAU improvements And we think we still have a lot to do on the ARPDAU part of things. So it's a very loyal and stable player base. So being able to optimize ARPDAU there is a great way to grow the business. And then, of course, you can see between Q2 and Q3 here is a really sharp growth, which is a combination of pandemic boost of players, but also, as we mentioned, new QuizDuel and WordC, both kind of growing in a really great way. So yeah, it's clear that this kind of strategic shift has paid off for us and we're very happy to continue on this path focused on multiplayer. Worth noting here as well is the light blue part with the single player revenues. It's, as you can see, very stable over the last quarters here. So it's something we can rely on, which is a great kind of contribution generator. So a few words about what we're up to right now. So Wordsy, really in scale-up mode. Very strong ARPDAU, which makes it possible for us to support the game with more user acquisition. During this quarter, we also passed 1 million downloads, which is kind of our receipt of that we made a game that works well. We're very proud of our product development process that keeps on getting games out that work well. And we get to these million downloads in a reasonable time after launching a game. Same thing with New Quiz Duel. So global launch in May, and it's also passed 1 million downloads during this quarter. And of course, in World of Manation and Rustle, we also have active teams developing features, as you mentioned. And Rustle came out with a new event engine, so there's now continuously running events in the game, and we see how that improved ARPDAU and conversion to payer. I think it's a great example of this reusing good ideas from games across the game, because we have a similar audience, we have the multiplayer. approach in all of the games, so it's really a strength for us as a company to be able to kind of see what worked in Word Domination, do that in WordC and now in Rustle and so on, and also stuff coming to new QuizDuel that we also see overperform compared to classic QuizDuel. And then, of course, continuously we live operate WordBrain and the catalog games, and it's a small team of three people that's running these games. that are contributing like seven, eight million every quarter in revenues. It's a very highly profitable and great part of our business. And just summing up what we're focused on right now, one is of course the continued scale up of WordC, so we're both recruiting more people to that team to build an even stronger group, and we have a very exciting roadmap ahead to kind of execute on. So I think there's a lot of exciting stuff coming for WordC in the next 12 months. We're going to continue to invest in user acquisition behind WordC and Word Domination, of course. and continue to invest in infrastructure and new games. So what we see over these years, as I talked about in the beginning of this presentation as well, the portfolio is an incredible value for the company. So to keep on getting new games out that work well, that can reliably build this pile of users and revenues is kind of a very solid strategy that we rely on. So we're going to continue to invest in new game development. And of course, the cross-promotion activity to new Quizzes is a bit of an outlier in terms of growth strategy. We have the optimizing on existing user base, and then we have the drive new games with user acquisition. But this is another part which is moving a huge audience from one older game into a new game with better KPIs. So that's a very exciting journey that we're on right now. And as of early May, we're global live, which means that we can cross-promote all of the players in Classic Quiz Duel. So that's an exciting part of the business development during Q4. And with that, I think we're ready to go into Q&A session, see if there's any questions from you guys who are watching this stream.

Just pulling up the question window here.

So community adjusted EBITDA seems to be above expectations. Why is the stock tanking? So the stock price I think is very hard to comment on and of course to understand why. So I think people that are in the stock trading business probably have a better answer for why stocks move in different directions. But we're very happy with the report. That one is easy to comment for me. It's the highest revenue we've ever published as a public company. Do you still see 50 plus percent increase in revenue from new QED compared to QED? So what we see is a much higher ARPDAU and higher engagement. I think that's going to translate to revenues. But what we're on right now is this transition journey to move more and more players into new Quistil and then I think it's going to show in the end how much better the game is when we have all the guys on board. Something I didn't mention is that we also introduced a subscription element to New QuizDuel. So same thing they're learning from Wordomination and now New QuizDuel also has subscriptions. So that's also going to be an exciting part to see grow. I think it fits well with this kind of very loyal user base. How has the advertising market changed from MAG during COVID-19? So maybe that's the one for you.

Exactly. That's something we kept a really close eye on. I think we talked about it in the last presentation as well, three months ago. We weren't sure when going into the quarter what was going to be the effect on the advertising market. And now, of course, we know much more. So I guess the main story is we've seen some movements from branding advertising into performance advertising in Germany, for example. I think we've been able to counteract all of that. So we've seen no or very little effect on the sort of every important income per ad view that we have across portfolio. And working with mediation partners, we can always navigate between where the money is in the market right now. So I think for us, we've seen, I think, no effect in a sense, but we can see some movements in the market.

Yeah, I mean, I think we talked about it before. Some of the obvious moves, at least, that kind of certain types of brand advertisers are basically out of the market completely. It doesn't make sense to advertise for maybe for travel and so on at the moment. It's coming back for sure. Yes, comment on depreciations of the new games QED World Sea, when it was activated and for how long per game?

Yes, a quick back up. We activate the games from soft launch decisions. When we build the soft launch version of the game, we start to activate it into the balance sheets and we depreciate over three years, so 36 months. And both games were activated starting end of last year. That's approximately the range we have.

I think that's maybe compared to some others, we are pretty conservative in terms of activations. So we, of course, have a lot of development of games that are not in soft launch and that's not activated. So when we put it into the balance sheet, we're pretty confident that this is something that's actually has a lot of value for the company. Good point. Confident about that. Two quarters from now, what's your best guess on revenue split between in-app versus ads? So yeah, that's an interesting one. I mean, when you look at a game like Wordsy, for example, that has a very, very high ARPDAU, it also has a bigger percentage of in-app revenues, especially in some markets. If you look at the US market, which is always stronger on in-app, they have a higher conversion to payer normally and also more high spenders in the game. So it depends a bit on how the mix will transition. We also have a big movement of players from old to new quiz duels, depending on how well they will convert into payers that could also potentially change the mix. My guess would be that we will tilt slightly more to in-apps versus ads over time. But it depends. I mean, we have a really good ad monetization team that is also doing their best to optimize the ad side of things. So it's not like we don't like the ad revenues. But it's when you have games like Worldsea, for example, that monetizes really well in in-app revenues, that will probably start tilting it a bit in that direction. The ad market is also kind of in general, maybe not the last few months, but in general, it's on an improving path as well in terms of rewarded video and how well they monetize. So we'll see. How come you have it so hard to actually make money? Even when corona affects, you have trouble making money. What are your thoughts about that? So that's of course the definition of what making money is. We're working on contribution as our kind of means to go from revenues to profitability. And then if we look at the organization side of things, we are investing in making new games. And as I mentioned, we're not activating all of that. So it shows up as kind of slightly less profitable than you might do if you have another way of presenting it. But of course, the longer term goal for any company and for us is to go to a strong EBIT margin and a strong positive cash flows. But we are in a kind of growth state as a company. That's why we're recruiting more people, doubling down on word C. We also see our kind of product development process as producing good results and we should continue to invest in building new games. which will kind of build the growth of the company for many years to come and the what we see and i think that's the important part is we have a really strong kind of underlying profit margin so the games in it in themselves are profitable but we are continuing to kind of investing in building organization as well to to build the pipeline for the future so we're not settling for 65 million in revenues and optimizing profit margins on that revenue base So we could easily show much more profit if the short term was the most important for us, but we are building something exciting for the long term. How does subscription affect other revenue streams? How will you continue to develop the subscription model? So that's a really interesting one. How we designed subscriptions in our games is to not cannibalize on the in-app revenue part. So we're not giving away tons of things you could otherwise buy. So that's an important part. We've seen this as a true kind of additive on top of the in-apps. What we do offer is an ad-free experience. If you're subscribing, we think that makes sense to be part of a VIP experience. So for those users that are subscribers, they don't generate any ad revenues. So it cannibalizes on ad revenues, but it's a much bigger contribution on the subscription and in-app revenues than they did previously on ads. So we feel very confident that it's a net positive. of course like the player patterns we see on subscribers that are super low churn rates and this is very stable loyal player base and developing subscription models i think it's if you look at the word domination development over the last year or so so they launched subscriptions in i think april last year And it was mainly ad-free, something else as well. But they continued to add on more exciting stuff. And I think the last fall, you started to win more things when you took part in events. And you can really see clearly that if I was a VIP, the benefits would be even higher. And it's early access to some kind of content as well. I think we're going to see more on that topic in the game. So making the experience kind of deeper and richer if you are a VIP and continue to remind people through running these kind of frequent events. So I think word domination shows how other games might develop. any new game second half of 2020. So we're not announcing games until they are going into soft launch. So what we can say is that, of course, we have games in development, but we will have to wait until we announce things. So I can't comment on that. Sounded quite optimistic regarding possibilities on M&A. What's your wish list in terms of size, geography and genres? I think this refers to... Parts of the report, the CEO award, we talked about we have cash in the bank so we can both accelerate user acquisition and look at M&A opportunities. I think it's a pretty exciting market right now from a buyer perspective. So it's not as obvious to raise money if you're a smaller game studio, but we could provide something really interesting in terms of context and finances. So we are looking actively at potential M&A opportunities. And I think it's a really exciting time to be in a strong cash position, that's for sure. So that's something we continue to look at. In terms of size and geography, We're pretty open to geography. Of course, it's easier if you're in a slightly similar time zone, but we definitely work with North and South America as well. And size-wise, we're trying to find things that we define as kind of working. So a good game that's proven or a studio that already shows that it can generate revenues. And then depends on kind of where they are in their life cycle. If that's more like a 10 million acquisition or a hundred million acquisition or even bigger. And we will decide what to do depend on what the company looks like. And then we won't limit ourselves to the cash in the bank if we find something that's really amazing. One of our competitors, Zynga, is investing in different texts like word games, instant messenger, Snapchat, Amazon Alexa. Are we also thinking of exploring these new opportunities? So we've been doing some of that historically. So new or quiz duel, you can play that on Alexa. already, so in Germany or in the US you can play Quiztool over voice, over Alexa. We were actually part, like a beta launch partner with Facebook for the instant games. So we Wordalot, one of our catalog games, we did a kind of instant game version of that game and launched as an exclusive set of like 10 or 15 studios globally were part of that launch back in 2017 or something. At least back then, it proved to be a pretty poor place in terms of getting good retention. So maybe our games weren't a good fit, or maybe it was something we should have done differently, but we didn't feel that we should double down on instant games back then at least. But we're always looking to trends where things are moving. But given the... The fact that we are working with kind of a very casual gamer audience and we want big volumes of players for our games, we can be slightly later to the party sometimes and make sure this is actually a valid platform before we kind of start dedicating resources towards that. I think we have a lot of space to grow in the kind of just App Store, Google Play. We do have games on Amazon as well, but it's kind of a tiny, tiny part of the business. Snap, I don't think, is super relevant for our kind of games. Our audience skews older than Snap. Will we see the same negative effects as last year on ad revenues this summer? I mentioned that in the report as well. In general, seasonality is negative for us between mid-June, mid-August, and often also in January. So basically, when advertisers pull back on their ad spend, And that means that in general, all things equal, we should perform slightly worse on the ad revenue side. And I say on activity side during summertime, if it turns out to be a really great summer in our biggest markets like US, Germany and France, people are going to play slightly less. But the good thing is they also come back every end of August and start playing again. So I'd say Q4 is our weakest seasonality-wise, but on a long-term trend it doesn't hurt if people come back again. But I think we've been fairly good the last few years to kind of counter that as much as possible, but for sure seasonality-wise Q4 is the weakest for us. What's the percentage split in terms of numbers of players playing quiz duel and new quiz duel right now? I can see why you ask that question, but we don't split the DEUs between games. And if it's not in the report, I can't really comment on that right now. But what I can say, which I think is important, is that our target is to push the audience from old Quiztual to new Quiztual as quickly as we can. I hope when we go out of 2020 that we have everyone on new Quiztuals. It's going to be pretty... Pretty active cross-promotion plan and really try to make sure all the players come along for the kind of improved experience on New Quiz Duel. But I can't give you the real-time split. And maybe worth commenting as well that some people play both games. So that's an interesting player pattern, but we'll see. And it sounds like year 2021 will be Mag's best year ever. Do you agree? So, I mean, what we can see is the trend of the last seven quarters from that we went into focusing on PVP that's been kind of underlying, very positive thing for the company. And I think it's hard to do predictions into each and every quarter going forward and so on. But we are very bullish on the future. That's why we are hiring more people into building our new games and also doubling down on words to create future growth. But I think you live and then you see. There's a lot of moving parts in the mobile games business as well in terms of How much can you invest in user acquisition in a given month or quarter? That's also up to competition and all kinds of circumstances. But I think we're well equipped at least for continuing on an interesting journey that we'll see kind of. If next year becomes our best year ever, that would be awesome. Looks promising. How big do you think Wordsy can be in the US? So what we're looking at when we make new games is one, of course, to make a game that's better than all other games we've made so far. That's kind of the biggest reason to launch a new game and spend more energy behind that. And then in terms of looking at the US potential for a strong word game, it's a huge market compared to Mag's current size. I think the opportunity for words is really, really big. Then it's up to... how the landscape shifts and how well we can execute on this great game. But I think the potential is very high for WordCity, but it's hard to quantify. But the word games market in the US is huge. There are reports on that, which would be more accurate than me, but it's in the hundreds of millions of dollars at least. It's a big market. To what extent did you recognize higher private equity valuations for mobile gaming companies after COVID compared to pre-COVID private equity?

If it refers to valuation of targets, I'm not sure, but if you take questions, I think the M&A effort is something that's ongoing and this has been a fairly short period. from the start of the corona pandemic and onwards. We're looking at targets on a continuous basis. We haven't experienced a strong difference in valuations in this period. What we can see is some metrics are moving, of course. So it's been a moving target in that sense during the period. But it's been a fairly short period and it hasn't affected us specifically, I'd say.

I think if you look at kind of a broader industry perspective, of course, there's been a lot of M&A activity from big players like Zynga and Scopely and so on. So there is a lot of consolidation going on in industries. I think that could be a good place to look for benchmarks and so on for M&A on that scale. Then, of course, we are kind of fishing in a different pond from those guys. So finding things that would fit well for MAG. So we're not... in competition for the same companies in terms of M&A talks. I am pretty confident. Are you looking for third-party games to publish? We're not ruling that out. I think what we are looking for is great games. And I say the most likely path for us is acquisition. So we're looking for great games that we can kind of buy and add to our portfolio. And maybe sometimes that could start as a publishing relationship and end up in a different place. But the starting point is, can we find really good games that we think fit our audience and our knowledge and experience? I think we are pretty good at judging if a game has high potential if it is kind of in our area of expertise. We have a lot of benchmarks to look at. So if we find a great game we're gonna try and find a way to collaborate but I'd say acquisitions is a kind of main path.

I don't see any more questions on my screen.

So if you didn't have time to write your question right now during the stream, go to Twitter and write questions there, and I will make sure they get answered during the day. And, of course, you can always reach out to us if you have any other questions. With that, I think we'll wrap up. Thank you so much for watching.

Thank you.