MAG Interactive AB (publ)

Hello, welcome to MAG's Q4 report. Here to present today is me, Daniel Hasselberg, the CEO of MAG. And me, Magnus Wiklander, the CFO of MAG. So today we're going to talk you through the highlights of the report for the period June, July, August. And then we're going to wrap up with a Q&A session at the end. And as usual throughout the day, you're welcome to write any questions on Twitter and we'll do our best to respond. So if we don't have time to answer your question now, there's going to be plenty of time during the day for sure. And here at MAG we make mobile games targeting casual gamers and our core markets are North America and Western Europe. And we have development studios here in Stockholm and in Brighton. And we are in the free-to-play space. So that means that all our games are free to download. And then we make money from in-app purchases, subscriptions, and in-app advertising. And of course, as a free-to-play developer, there's two pieces that are equally important. You need to make really fun games, but you also need to be on top of data and analytics, both from a product development perspective and from a user acquisition perspective. And we've been around for about 10 years and we launched games continuously and that ends up now in a situation where we have a really strong portfolio with games in different parts of their life cycle. So all the way from very newly launched games like New Quiz Duel that came out globally just in May this year all the way back to games that are more than eight years old. And this mix, I think, is a true strength as a games company. We don't rely on one single title and we also have games that are in growth mode or in more of a harvesting mode with very high profit margins and smarter teams and so on. And about 2 million people play our games every day, and they spend more than 1 million hours playing these games. So this kind of high engagement audience is something that we're very proud of and focus on when we build our games.

And since the beginning of September, we also have a new member of the portfolio, Primetime. And this is a different dynamic with higher engagement, short play time, specific broadcast times in the day, in the evening, and a lot of times several faces in front of the screen playing together on a single phone. So we're very excited about this and we'll come back to it during the presentation today.

And two games that we talked about a lot lately and will continue to talk about a lot are the games where we see the biggest potential for high growth in the near term. It's WordZ and New QuizDuel. And WordZ is a game where we can create growth by user acquisition. So that's what we plan to continue doing, invest more in user acquisition behind WordZ. We see also a very exciting roadmap for the game, so new features coming out now at a higher and higher pace. Just a few days ago we launched a new feature called Journeys, which is a new way to play WordC, and all of these things are having a long-term engagement in mind. Can we build the next evergreen game for MAG? We already see that we have the by far strongest ARP DAO and monetization potential in this game, and we're really excited about the stuff we're going to do further in the future as well.

Exactly. And regarding new QuizDuel, that's also exciting, moving all the users from the old QuizDuel into new. And we're ramping up that effort now. We're 40% into this, so 40% of our users now play the new version of the game to date. And the ambition and target is to have that done before the end of the year. And one milestone in that work was to actually close down the old app in Sweden a couple of days ago. So now 100% of the users in Sweden play the new version. And also in doing this, the high volumes of users moving over creates effects on the chart job positions. So we were number two in Sweden overall downloads in the weekend.

So big migrations of players, but it's really great to see them actually coming over and start playing the new game. And that's according to our plan. And this picture kind of positions the games in different categories. So bottom left here, we look at the new games. So of course we have a number of really exciting new game development projects that haven't hit the market yet, but that we're really excited about. And then in the growth part here, you can see then WordC and new QuizDuel where WordC is primarily fueled by user acquisition and New Quistual primarily fueled by user migration at this point in time. But if you look at longer term, as you mentioned, 40% is already done. 100% will be done by the end of the year. But longer term, the continued growth will be from improving the product on that user base. So, of course, the integration of primetime is something we'll come back to. But it's a very exciting journey for New Quistual for this coming financial year.

Exactly. In the top right corner, we have our evergreens. And as ever, that's Russell and Burbain being there with relatively high revenues and with balanced size teams and no marketing support, still being stable in the income and therefore producing good margins and good profits. And we expect to have them with us for a long time going forward.

Yes. And then to prime time. So this is an acquisition we announced the last few days of August. Really exciting step for MAG. So we believe that this kind of live broadcast opportunity is going to put it in a place in the market where we have something that's truly unique. So both having this 24-7 all year round possibility to play asynchronously against your friends and then combining this with this kind of real-time thing Gather around one single phone as a family or however you play primetime. I think that's a really exciting addition to to mobile games and Of course, we hope that I mean over the years more than hundred million people have played quiz tool So having this new exciting thing to come back to try out in these new questions something we can Sieg can drive a lot of attention in the lapsed player base as well. And then of course it's also a new revenue stream as Primetime have this kind of sponsorship. So this today's show presented by Sponsor X. And that's additional to the in-app purchases and advertising what it would have in New Equestrian. And of course, you could have live shows in multiple games in the MAG portfolio, but the most obvious fit is of course New Quiz Duel, which is a trivia game where the live trivia show would fit perfectly. So that's the first step for us now.

Exactly, and we announced the deal at the end of the last quarter and with some details. So we had 20 million SEK upfront payment and an earn-out based on profit share. So the earn-out will be paid out of the future profits of the acquired company over the next three years. The deal was closed on September 1, so that was quite close after the signing, and therefore it's part of MAG from the start of the financial year that we're in, so Q1, and it's not part of the Q4 report at all. Yeah, exactly. That's good to point out. Yes, let's look at some of the top KPIs. Exactly. So we have our monthly and daily unique users, what we call MAO and DAO, are relatively flat year over year. Those following the company know that this hasn't been flat throughout the year. We had a big bump based on COVID in Q3 primarily, but a slight increase compared to Q4 last year. And throughout this year, we've had a strong development in our ArcDAO KPI, which is, of course, very important and a big focus. And it's up 29% year-over-year. A big contributor to that is WordC with its strong monetization, but also the conversion of users from old to new QuizDuel. But also, if you look broader, the entire multiplayer portfolio has improved ARPDAU since last year. So it's a broad, general ambition we have to work with that.

I think that's great to see that all the teams are really trying to follow on to this challenge we set for ourselves to improve ARPDAU. So it's basically all across the board that helps out here. That's great to see.

An increased ARPDAU translates into a similar improvement in net sales. So it's up 28% to 55 million SEK. Notably, it's mainly the in-app revenues causing the increase. So they are 76% up from last year. A lot of that is worth it with its strong in-app monetization. We see user acquisition going from 9 to 22, so that's a big increase. Most of that goes into WordC, that's a game.

One comment there on the in-app revenue, so 76% increase is a lot. And it's also, of course, driven by a lot of new monthly unique payers, which is another KPI you can follow in our reports. So a lot of more players turn into payers, especially in WordC, and that really helps user acquisition algorithms. So technically, when we run campaigns, they learn from the players we get in through the previous campaigns running. And if more people become payers quickly, they learn quicker. So this is a really good thing for our user acquisition activities to have a strong paying conversion game. Exactly.

And the increased UA puts some pressure on contribution that comes in at 26 million SEK in the quarter.

Yep. Yes, and this is a picture that shows the development for MAG over the last two years. Two years ago we went out and stated that we're now going to focus as a company on making multiplayer games. And we also identified ARPDAU as a kind of key KPI where we think we can improve as a company. That meant that all of our teams have been focusing on multiplayer games and also on figuring out how to improve the ARPDAU. And I think this shows that we are on a really good path in terms of executing on our plan. The multiplayer revenue has more than doubled since we started out on this strategy. And also ARPDAU, as we can see in this picture, the white line, graph here shows it's continuously improved over the last eight quarters a pretty big jump up from q3 to q4 so this is of course just the start of the journey but i think it shows that what we're doing actually works and our teams are executing really well on our strategy What we can also see here when we stretch out the timeline over two years is the seasonality pattern. So we tend to have strong Q3s and always have a weaker Q4. And we talked about that previous report as well, that Q4 is usually summertime. People tend to play games less and do more other activities. And also the kind of the CPM levels on advertising in general go down. So that in combination always puts a bit of pressure on a Q4. But what's noticeable in this picture, of course, is that the drop, that's usually maybe around 10% that was a year ago, is bigger this year. And we attribute that to the so-called COVID bump we saw in Q3. So we got millions of players coming in, especially Italy, France and Germany in March and April. which bumped up Q3 to higher levels than we would have expected otherwise and now we see a drop down that's slightly bigger than usually but still want to emphasize that this is our best Q4 in many years and of course a big jump up versus last year. So this is the Q4, so that means that we have a full year that we kind of wrap up and look at. So try to put that down in just a few sentences. So the highlights for this year, the revenue increase of 26%, and it's really based on the work we've put into improving ARPDAU, which is up 24%. And super happy about releasing two new games. So our games tend to peak after two, three years or sometimes even further out after launch. So since these games are new in the market in our terms, we have a lot of growth to expect in the coming years as well. So this is a great start to the financial year, having two fairly new games out in the pipeline. Exactly.

And of course, we ended the end of the year with a primetime acquisition, which we're excited about. And we're now at hard work to integrate that into first question. And we see lots of movements in the market. So we're looking forward to look at more deals going forward as well.

It's a lot of exciting stuff out there. And to summarize what we're focusing on right now, so Q1 and forward for Mag, it's a continuous effort to scale up Wordsy, both in kind of product development and user acquisition. And we also see that the strategy we laid out worked really well for us. We're going to continue to invest in optimizing infrastructure around analytics and backend, the user acquisition, and of course, developing new games that will be the next growth engines for MAG. So that's something that we continuously keep investing in. And then finally, of course, the very new acquisition here, trying to integrate live broadcast into our game. So that's... really exciting kind of longer term bet for MAG and see what can we do with a live broadcast component in our game portfolio. So I think that sums it up pretty well the last year and how we look at kind of going into this new year that's really exciting for us. So let's see if we have any questions to go through here. So we'll take some time going through that here on Twitch. And then, as I mentioned previously, we're also going to use Twitter during the day for written answers if you have comments. So, we have a screen here with some of the questions coming in. So, from the top here, regarding the UA costs, how much of this went into new Quistio? So, the vast majority of all user acquisition in Q4 went to Wordsy. So, that's the game where we've seen the best returns and the best possibilities to create value. So, almost all of the UA spend is behind Wordsy at the moment. Next one, what can you do to improve the acceptance of subscription mode in new QuizDuel? So that's a great question, really interesting. What we've seen in word domination is that it's taken quite some time to gradually improve the kind of this subscription package to make it more and more exciting and interesting for the players so starting out with an ad-free experience and maybe something else on top and then building more and more exciting content into the subscription package so The recent update or new quiz tool that came out have a much more kind of fully fleshed avatar system so you can make really great looking and fun avatars that you use in the game. Some of that's locked into a subscription package as well. This is gonna be kind of continuously adding more and more features that makes it interesting to be a subscriber. And as we've seen with word domination, it's gone from like 10% of in-app revenues or something to almost 30% of in-app revenues coming from a subscription. How sustainable do you estimate the art of increase? As many players complain about longer and non-removable ads, does this generally create more churn? It's also a really good question. So something we look at is, for example, pacing of advertising or complete removal of advertising for payers or certain kinds of payers and so on. So all players don't necessarily get the exact same experience here when it comes to exposure to advertising. It's something we run as A-B test and optimize. It's sometimes not intuitive. You think maybe you should remove advertising completely for payers, but maybe that's actually not the best idea. So it's all very data-driven and something we continuously look at because... I think that's for many mobile games, maybe all mobile games that contain ads is one of the most frequent complaints you see in reviews. It's too many ads. So you need to measure that against retention. And as the question mentions here, churn. So if it doesn't affect the churn, of course, you should also try to make some ad revenues. Next question, will we see primetime content in new QuizDuel before the end of the year? So that's something we can't promise right now. We've been working together with the primetime team for six weeks, so it's really, really early days. But what we can talk about is that it's a prime priority, both from the primetime side and for the new QuizDuel team. So really hard at work integrating this. And then we'll see about timeline how soon we can come out with testing this initially. And as usual with Mag, we always A-B test and optimize how the feature is packaged before we kind of ramp up to full audience where it really starts to have an impact on the revenue side. So we'll have to come back to that when we see how kind of this testing develops and so on and always stay true to being kind of data-driven in how we roll our products. Any new games in 2020? So that's of course a super exciting question for everyone. But we stay disciplined here and we talk about games when they hit soft launch and then we'll press release. So that's how you will know about the next game as well. How confident are you in funneling the remaining 60% of Quiztool players to new Quiztool this year? And will this be done with the same tools as used to move the 40%? So, yes and no, I guess here. We're confident we can do it. What we've done so far is using different types of cross-promotion. We've had events that were only available in new QuizDuel to really encourage people to come and play the new QuizDuel instead. Some people have played the games in parallel, I believe. But some people just don't want to move, and we see a much stronger performance ARPDAW-wise and engagement-wise in the new Quistiole, so we will now start really forcing people to move, and that's something we've been testing out now over the last month or so, what kind of effect on churn you get from forcing update into a new SKU. But it looks really promising. As you mentioned Magnus, we shut down Sweden now. I believe it's happening in a number of countries now in the not too far future. So new tools. It's basically removing the alternative, the option of playing Classic Quiz Tool. If you migrate the whole player base from QwistUle to New QwistUle, what will ARPDAU be if everything will stay the same? So ARPDAU is significantly higher in New QwistUle versus Old QwistUle. And then of course this is the million dollar question. Will all of the Old QwistUle player base behave as the ones that are currently playing New QwistUle? Of course we hope so and then the ARP DAO will go up on a pretty big user base and that could create a lot of value for MAG. But it remains to be seen and that's going to be really exciting now during the fall and see if we can move the player base with us and they perform as the current player base does in U-Quiz Duel. Then it's going to be a really good move for us as a company. When can we expect to see synergies appear on the product and business side related to primetime? So I think we have a few different kinds of synergies we see with primetime. One is like the standalone primetime app is a successful game or app or show, whatever you want to call that experience. But it works really well in the Nordics. It has a strong appreciated brand and all traffic is organic. But where I think we can help is on the gamification and in-game monetization side. So hopefully we can help the primetime team monetize a bit better on the current primetime experience. And then of course the biggest synergy is getting a live show within New Quiztool which has a much larger player base than Primetime has across the Nordics. And when in time that basically depends on how quickly we can have a first version out and start testing it and if that performs really well out the gates or if we need kind of fine tuning before we can scale that up. Definitely during this financial year, and then we want to do that as quickly as possible. But it's really hard to kind of give firm dates right now. But we want to get out and test it as quickly as possible. That's the timeline right now. Number of employees are growing quite steadily. What's the plan here? So this is basically the plan or the data I showed a few minutes ago on the eight quarters since we started focusing on this new strategy. I think we see that what we're doing actually works really well. The ARPDAU is growing. The teams are doing a great job. And we have better and better use of our infrastructure in terms of both BI and user acquisition and optimizing backend. We have more and more technology that's using across multiple of the games. So I think we're going to continue to invest. But as you see, also, there's no kind of dramatic increase in employees. And we don't plan for that either. So it's going to be... No drama here, but we continue to believe that we have a good plan that's worth investing behind. What's the end game for subscriptions? Do you think it will be the majority of all IAP revenues next year? So I think that's kind of looking at the trend for word domination where it's kind of grown every quarter in terms of share of in-app revenues. I mean, we don't see that as be the only business model. So it's a complementary business model. and might work better in some games, worse in other games. Or if you have a really huge in-app purchase volume already in a game, like in WordC, probably subscription is going to be a smaller percentage, even if it works really well in that game. So we see this as... Puzzle where you have in-app advertising, in-app purchases, subscriptions, and in NuQuiz still also sponsorships. So these revenue streams are complementary. So we don't think that MAG is going to turn into a subscription-only company in the future. Though it's a really exciting business model, of course. Can we expect a faster product development rate going forward? It seems like new development takes a lot of time. Why is that? So I think that kind of eagerness to get stuff out is something everyone shares, both kind of within the team, within the company or outside the company. You want things to go as fast as possible. And what we do is, of course, to try and make sure we do the right things. And when we test features that don't work, cut them and try to get something that works better. So sometimes you don't see all the development from the outside, even though there's a lot of stuff going on. But as a company, of course, we're always focusing on kind of increasing output of valuable things. When it comes to Wordsy, for example, I think there's, when I look at the roadmap for Wordsy, there's a lot of exciting stuff coming out. So I think there is going to be like an increased pace versus previously. Because you kind of work through some core things that makes it easier to build new stuff. We talked about that with new Quistual as well, that it's a much better foundation than old Quistual that makes it possible to add a big thing like live broadcasts into the game.

Yeah. How will the additional purchase price of 80 million SEK be reflected in your balance sheet from next quarter? And we will publish that in our Q1, the purchase price allocation. But part of the earn-out, of course, will be in the balance sheet with us from Q1 and onwards. So we'll come back to it, but we will publish that in January.

Why don't you include subscriptions in WordC? So that's on the roadmap. It's gonna come in WordC as well. This is again about priorities and we have a very very strong ARPDAU in WordC and a strong conversion to payer. So we see that the biggest value for the game right now is to keep players engaged over a long time and do more of the stuff we see working really well. And subscriptions is definitely part of what's going to come into the game, but it's not kind of the top priority in terms of time. So this is kind of the team looking at what moves the needle the most. That's not going to be subscriptions in the short term. Brighton Office have communicated that they have two games in production. How many games do you have in production stage greenlit totally? So I guess this is someone looking at ads for recruitment maybe. So we do have games developed in Brighton. We both have the live operations team that do World Brain, World Brain 2 and World Lot. And then we have the World C team plus another game that they're working on. But as I mentioned earlier, at least to this point we have chosen not to communicate exact number of games that are greenlit and kind of on a path to a potential soft launch, rather just talking about the games when they do hit soft launch. So I can't really comment on the exact number, but we have some exciting stuff in the works for sure. Are there any negative effects on revenue from ads related to the transition from quiztool to new quiztool? No. I think we see both ads and IAP performing better in New Quiz Duel. The mix is slightly different. In New Quiz Duel we have more rewarded ads. If you play the game you know that there is a game mode called Arena where you can replay against the leaderboard in different categories and so on. If you run out of tickets you can look at rewarded videos to get... get more tickets so I think that the mix is slightly different but in general I'd say no but we do see a bigger percentage of in-app revenues in the in the mix overall which is of course very positive. Do you expect primetime business excluding new Qistio to be stable, growing or declining in the next 12 months? So I think that's too early to tell. We've seen from the last 12 months or so of primetime standalone that they grew compared to the previous 12 months. So now it's going to be up to how well do they execute? Can we find synergies where we can help each other out in terms of creating growth for the kind of the standalone primetime business? So I think it's too early to tell where it's going to head. But it's a really strong product offering. Of course, we hope they will grow and continue on a great path. And we're going to try and help to make that improve as well as the new Quiztual integration.

Are you able to increase UA spending even more or are you not able to do that while keeping the 180-day payback goal? And I guess first of all we talk about six to nine month ROI or ROAS time for us where of course it's we aim to be at 180 days but we can extend it further. And no, I say definitely yes, we can increase our UA spend. It's not the 180 day as such that is the limiting factor. So I would say yes, there are many other factors involved and our goal is definitely to increase our investment in UA going forward.

I think the complexity here with user acquisition is that there's so many moving parts. So it's our own ability to create well-performing games and kind of be in front of the market. And then of course you have the competition. and then all kinds of other movements in terms of how do facebook and google and other important channels work with their algorithms and the tools they can give to our teams in terms of how we run campaigns it's really kind of it's a lot of moving parts and that's why we we've chosen to invest a lot in our kind of bi infrastructure to make sure that we can see into the future as much as possible and adapt to what the value we can model will come from what we did last week and so on. But the aim is always to increase if we can, but we will not do it if we can't keep our profitability goals. Okay, can you say something about performance and future of Rustle, WordBrain and Wordomination? So yeah, I mean Rustle and WordBrain are in this kind of evergreen category where we see stability or actually in Rustle's case it's been growing compared to last year thanks to great work on ArpDAO and I think we mentioned that in the previous report and maybe in this report as well that We've rebalanced or refined the in-game economy in RUSLE, so it's also getting an improvement in terms of in-app revenues and I think it could be another good year for RUSLE. World domination, we still have in the growth category, we believe a lot in the product, we have a lot of really exciting stuff on the roadmap here for that game. But as I mentioned earlier, majority of the UA spend has been behind words in the last quarter, which of course affects the kind of the growth possibilities for word domination. But it's still a game we hope can grow into next year. How do you expect the ad business to be affected from the coming changes of IDFA? So this is just to explain what IDFA is. So that's an identifier for advertising that's used in the iOS ecosystem. And Apple has announced that they will change how IDFA works. So users will have to opt in to say, it's okay for me that you track my behavior. And I think this is something that the entire industry is looking into, trying to understand, but it's actually no one that knows what's going to happen exactly when that turns on. Apple had planned to do it already in September when iOS 14 launched, and then they said, we're going to postpone it to next year. So I think there's a lot of stuff we actually don't know yet. So we'll see what happens. It could be... this kind of glass half full half empty metaphor maybe it opens up new possibilities for user acquisition when we don't compete with companies in the same way or maybe it affects ad revenues in a negative way or maybe brand advertising or other advertisers fill up whatever demand goes away it's it's really hard to predict but it's it's of course something that we in every other company in the mobile business prepares for and try to to handle in the best possible way when it happens so not a great answer but that's what it looks like yeah what exactly is research and development deductible of 7.6 million sec approximately

That is, the Swedish tax authorities give a subsidy or tax relief on research and development. Forsknings- och utvecklingsdrag in Swedish. And we have backdated that a couple of years. And we also, on a running basis, we make that deductible. So 600,000-700,000 SEK per quarter, roughly, on an ongoing basis. And this number is the retroactive amount that we have applied for.

So we'll count on those 600-700k per quarter going forward in continuous reductions of salaries. Exactly. Costs. So that's a good thing. Thank you to the Swedish government for that, I guess. Will primetime income be regarded as ad revenue? So we haven't talked about how to define it, but I'd say that sounds reasonable. I mean, it's also... At least in accounting I'd say the big difference between ad revenues and IAP is that on IAP you also have a cost of revenue like the platform fee and ad revenues is net.

We do differ between the programmatic ad revenue and primetime revenue which is different in the way it is sold and dynamics and much closer relationships with the brands advertising, but it's still sort of under the ad umbrella. So it's different, but it's still that.

Cool. Thank you for all the great questions. We're wrapping it up here. And if you have further questions that we didn't have time for now or come up with something during the day, feel free to address us on Twitter and we will respond there as well. So thank you so much for watching.

Thank you.

Bye.