MAG Interactive AB (publ)

Hello and welcome to MAG's Q1 report. So here to present today is me, Daniel Hasselberg. I'm the CEO of MAG. And Magnus Eklander, the CFO. And we're going to go through the highlights of the report as usual. And then at the end, we'll have a few minutes for Q&A. And also throughout the day, we'll answer any questions on Twitter. And there's a link to how you can reach us on Twitter. So let's talk about this period. So it's September, October, November that we'll discuss today. And the highlight is, of course, our 39% revenue growth, reaching the highest revenue ever in the history of the company, 97 million. Something we're super happy about.

Yeah. And we talk about the increased user acquisition, which is also a big part of the report, obviously.

Yeah.

Starting out with the audience KPIs, where we see the DAO coming in at the lower level and at 1.2 million. This is reflecting the targeting we have in the use acquisition and the influx of lower volumes of higher value users that we have. At the same time, for the same reason, we see ARPDO going up from 5.7 to 7.8 US cents.

Yeah, and I think part of what we see here also with this higher user quality is you can see that in the in-app spend. So consumers tend to spend more in the games, these high quality players. So the revenues overall are up 39%, but the in-app revenues are up 75% this quarter.

Yeah, and user acquisition is up significantly from 15 million to record level 51. We will have a look at that sequentially to also understand the dynamics of where we're at. So we see how the use acquisition is growing from the high levels in Q4 of 43 to 51 in Q1. And that's on the back of a few quarters of lower level spend. And after the quarter, we've seen slightly lower volumes. quarter to date or more in line with the fourth quarter?

Exactly. So like if you think 50 million in Q1 is more like 40 million right now, but we're only halfway into the quarter and we continue to be really like looking forward to invest more any opportunity we get when we see that our models work so well and support kind of profitable UA. So we'll see where we end up. But right now, half into the quarter is more like 40 than 50.

So financial KPIs, again, up from 70 million net sales to a record 97 year over year. And that's sort of on the back of the strong user acquisition we have and also a strong US dollar. We already mentioned ARPDAU up 38%. And we remind ourselves here that ARPDAU is in US cent, US dollar cent, so that we're sort of free from the currency effects that we have on net sales and look at more of the fundamental monetization in the games and the user quality.

Yeah. And if you look at the contribution here, so that's what's left after you deduct UA investments and paying platform fees. So it's 15 million less than a year ago. The big effect here is, of course, user acquisition, which is like 36 million more than a year ago. But also a bit of it is platform fee. So 75% more in in-app revenues also mean that we pay more to the platform. So it's about 6 million more in platform fees this quarter compared to one year ago. And looking at also the cash position, we still have more than 100 million of cash at the end of the quarter. So that's good news for us when we look at UA investments going forward. The only thing we need to be concerned of is, do we have good support from our models? Can we invest with profitability? And if we can, we are in a good position in terms of the amount of cash we have. And we really like to have cash out working, creating profitability for the company. So this is a really good thing for us. And yeah, speaking of that, so we see a lot of opportunity for growth. Obviously, we've been growing really nicely over the last few quarters. And you can see also if we look here in the picture with the same with UA sequentially and the revenue development and the EBITDA margin, they're strongly correlated. So when we do increase user acquisition quarter after quarter, it pushes down the short-term profit margins. But it's just dynamics when you have more than a quarter of payback time, it's going to be like this until kind of revenues catch up.

Yeah. And over time, with more data building up for Wirtzy, we also can get more knowledgeable about long-term LTVs and strong retention. And this allows us to comfortably extend the payback window for Wirtzy somewhat. And currently, we allow for a 75% return in the sixth month, as we mentioned in the report. And this is still while maintaining a healthy overall margin of the marketing itself long term and sort of never compromise with profitable UA ever.

Exactly. Yes, so this opportunity is something we're going to continue to go after, that's for sure. And if we take a couple of steps back here and look at the last four years of development for MAG, so we've been showing a good growth here for the last 17 quarters. It was about four years ago we started talking about, like, we need to focus on ARKDAO. That's our weak point as a company. We started at like two and a half cents or something four years ago and really worked on that. But what's interesting with this picture as well is that all these kind of... We talk about three different growth engines for the company. So one is... extending the portfolio with launching new games and acquiring new games and so on. And here, of course, we launched World Sea and new Quiztual and Tidal Mansion, and we acquired both Primetime and Apprope. And the second engine is increasing user acquisition investments, something that's going really well for us right now. And the third is continuous improvements of our games, like the LTV improvements on the live audience we have. So these all play together to create this picture of this is the 13th straight quarter of year-over-year growth. And if we look slightly more recent, the last nine quarters, we see this strong correlation between ARP DAO improvement and revenue growth. And just a bit of a reminder in this picture why we have this little blue thing here is we had a one-time revenue event in Q3, which was we shifted to a new advertising platform and we got a transfer bonus of about 14 million SEK.

Yeah, and speaking of the ARPDAU journey, it's been going on for quite a while, as I already mentioned. And here we see the journey from $0.04 to $0.08, where we're close to $0.08 at the moment. And it's a combination of our focused development work of new games and existing games. And as new games are generally on the $0.20 global ARPDAU, we expect this to continue to develop going forward as well.

Yeah, so definitely a focus continuously to increase the ARPDAU. And part of this, we come back to that a lot in the report in this presentation, like the high quality users we get in at a much higher ARPDAU really helps this trend as well. Yes, here it comes. Waiting a bit for this picture to show.

Yeah, so on the product mix page, as always, we have our LiveOps portfolio on the right-hand side with the evergreen long-term strong retention games with a stable and long-term monetization behavior. delivering around 100 million yearly run rates, the good profit, and run by a focused small team to deliver this for us.

Yeah. So this kind of eight people crew has a lot of revenue that they're handling. And really important to understand in terms of how we think about product portfolio development is we build the games with the same set of tools and make it easy to live operate in an efficient way. So, the newer games and the growth games, they will at some point end up being run by this lean LiveOps team. But looking at the growth part of the portfolio right now, it's growing really nicely doing 70 million this quarter. And it's actually the same amount of revenue as the entire company did a year ago. WordC doing a record quarter, Quiztube also beating last year's Q1, and Tile Mansion, as we mentioned in the report, now early Q2, expanding to French and German speaking markets. And this is really early days, like as we see with WordC, it's three years after launch and still doing kind of record quarters. So there's a long, exciting journey to come for Tile Mansion. And then looking at the newer unreleased games, so we talked about that in 2022 as well. We're investing in the capabilities of making these kind of renovation-style games with a light narrative and a casual puzzle core in it. But they're quite big projects. We want to do it in an efficient way. So now we've built more of a framework for building these kinds of games. So that means that we can simultaneously test multiple games with the kind of same software. So we're currently testing two different core mechanics in a new renovation style game. And also we have a multiplayer word game that we just put out in test during Q2 here as well that have some really interesting numbers. So a lot of good stuff happening in that corner of the business as well.

Yeah.

And yeah, coming back to this, as I mentioned earlier, with the growth engines. So this is what we're always focusing on as a company. So getting new games out, we have the ambition to soft launch multiple games this year, hopefully get a game out globally. But it's always about being disciplined, looking at data and creating these new evergreen titles that we can grow for years to come. But that's the ambition to launch games this year as well. And we also have the M&A opportunity. So it's a very different market right now than a year or two ago. So more games are up for sale or studios, and it could be all kinds of reasons, but it could be hard to finance user acquisition or hard to raise the next round of capital. So, yeah, we're in continuous interesting discussion over the last few months.

Yeah. And user acquisition is an important organic revenue growth generator. And so we're super happy to be where we are. We can spend. There is an opportunity in the market and we have the muscles to do it as well.

Yeah. And of course, what a lot of people here at MAG work on every day, which is kind of just making our games better, improving the player experience, make sure they have more fun, stay engaged, which helps the LTV curve last longer. So just improving the live products and Yeah, I also want to take the opportunity to thank everyone at MAG that helped get to this record quarter for us. But looking ahead, the first quarter of this financial year, great to see record revenues, new games in development, and that we can continue to invest at this very high level on the UA side of things. So, great start for MAG. Yeah, and with that, I think we move over to looking at if we have any questions. And again, a reminder that we will continue to answer questions on Twitter throughout the day if you address it to me or to Mag. So checking here on the computer if we have some questions. So we have one here. Are you happy with the amount of money you invest in UA at the moment? So I'm happy in general with the levels we're at. We always want to invest more. So that's why we think about how much confidence do we have in the data? Can we put even more money at work and so on? That's a question we always ask ourselves and see if we can up this even more. Because the more money you have out working with a good profit margin, obviously the better. But comparing to a year ago, I'm very happy to see us now pacing at 40, 50 million instead of 15. But we always aim higher if we can. Okay, what's a normalized EBITDA percentage you're targeting medium term with normalized investment in UA? So I think this refers to what if UA investments were stable over time rather than increasing. So I think that's a very relevant view of kind of understanding how they're just ongoing businesses. What you could see if we rewind maybe a year, so we were going 15 million per quarter, quite steadily. And then you saw like the EBITDA margin hover between 20 and 30% a bit, depending on quarter. and the EBIT margin also creeping up. I think we had an EBIT margin of around 10%. Our longer-term goal, as we talked about, and I think it's part of our financial targets, is to get to 20% EBIT margin, but we need to grow a bit further to reach that. But on this question, I think between 20% and 30% EBITDA margin is reasonable to expect when the UAE is more stable. Okay. Do you think the mobile market has bottomed yet or when do you estimate that to happen? Yeah, so this is, I think, referring to a lot of industry reports from like Newzoo and Data AI and those, Sensor Tower and so on. I think they've all pointed to age two, like second half of last year, the mobile games market did decrease a little bit. Some say 2%, 3%, some say 6%, 7%. I think it's hard to know the exact numbers. But it's a shift in trends, obviously, from growing every year for 12 years or so. I do think it strikes different parts of the games industry differently, obviously very different from PC console, but also within mobile, different categories are impacted in different ways. I think both the ATT from Apple. Versus attribution of UA, I think that strikes harder for games that are very dependent on a few very high spending players. And also maybe the consumer spend, like in general, I think in our kind of games. people spend maybe as frequently or even more frequently, but smaller sums of money. So it doesn't seem that they are as impacted of bad times. So I think even if the market continues to go fairly poorly in 23, not as sure that it actually will have a big impact on us. And I also looked at this in the revenue mix. We saw our in-app revenues grew by 75% versus last year. It also shows consumers are willing to spend in our games. So not any signs of recession there. But yeah, to the question, does it bottom out to 23? Let's hope so. But not super relevant to us, I do think. Okay. Do you still see your genre as particularly resilient in a recession? Also, that's kind of similar to what I talked about. Yes. So given that we see the signals of higher than previous consumer spend in the games, and when I read about other kind of expert opinions, they seem to agree with us that casual games are probably less hit by recession economics. Okay. How do you think about investors demanding short-term profits over longer-term user acquisition and growth? Here I think it's actually really valuable for us to have still a very founder-heavy management of the company. I'm the biggest owner in the company. We have a lot of big ownership of people operating the company. So we always have the long-term value of the company at heart when we make our decisions. So we don't have to be... Of course, we care about what the market thinks, and it's really important for us to explain why do we make these decisions. They are profitable. It's creating value longer term. But we would not hesitate to invest more in user acquisition because it would impact the short-term result. That's something you see today in this report. Obviously, EBITDA margins going from 25 down to zero over a couple of quarters. That doesn't look good short term, but it's the right decision, so that's why we're doing it. Okay, what's the next one? Give some color to how you intend to go from today's breakeven business to 20% EBITDA median long term. Higher spend per user or back to significant user growth? Yeah, so that's a great question. I think when we look at UA in general, You want to put in a dollar and get $1.50 back or $2 back over some period of time. Then you just want to do that with as many dollars as possible and you get profitability. A good thing with the business model in general is we don't need to have five times as many people working at MAG if we have five times as high revenues or five times as many players. So just growing the business in general with the same kind of margins on a gross level means that the EBIT will start to show. So we need to grow a bit to get an EBIT margin of 20%. But the fundamental kind of unit economics is really strong. So we just need to do more on what we do. The trend in terms of, is it users? or performance per user that's going to help make this happen. It definitely looks like it's more the performance. So it's more likely that we see an ARPDAU average that is three times bigger than today's at some point than to see the DAU three times bigger than today, if we do what we do, right? So our UA is very focused on USA and tier one markets, so they tend to be expensive and high quality. And our new games also tend to be much better at monetizing, so ARPDAU going up. But I mean, you never know. We've had freak incidents in the past, like QuizDuel blowing up in Germany or Russell in Italy and so on. If that happens, the game completely shifts. Much higher DEU, much lower ARPDAU. But the kind of user acquisition driven growth is more likely to be the trend we see right now. Yeah. Okay. Was the generated revenue from UA spending in line with your expectations? Please comment on how your model have performed during Q1. Maybe you want to take this one?

Yeah, so the answer is yes. We model all our UA always and we are very super strict with having it profitable and the sort of healthy margin on top of anything we spend in marketing side of the business. So yes, and as we comment, we have been able to lower was extended payback time for WordC a little bit. And that, of course, affects the models, but doesn't affect the fundamental answer that the margin is there. So, yeah, it has developed well and according to plan. And we can continue on the same plan as we speak as well.

Yeah. And I mean, the general, the great thing with having these kind of Sometimes you talk about it as games as a service or whatever, but a game that's been live for not months, but years, and the earliest game even more than a decade, you get so much comfort in the data, they tend to be very predictable after a while. So the longer we've been in the market and the more money we've spent on user acquisition per channel and type of campaign and so on, the more confidence we get. So it actually creates a lot of value on top of just the profit margins, we get better and better modeling. So it's a really good effect. Okay. Was your push even throughout the quarter or was it more focused at the beginning or end of the quarter? So I'd say it was fairly even, I think maybe slightly more in October and slightly less in September, November, but it's even enough that I think if you are One of these persons that tried to model the business in Excel, for example, taking an even spend is a pretty fair picture of the quarter. What's the expectations on Tile Mansion for the coming years? So, Tile Mansion is a really interesting title. There's a couple of other games that are playing around with a similar core mechanic, this kind of Mahjong-style mechanic. We've seen some of those games grow really big. They are like the biggest player in that kind of category. I think it's doing somewhere to $200,000, $250,000 per day in revenue. So, it's a huge thing to go after. So, this is all about kind of optimizing the product, focusing on long-term retention, running UA, and make sure the models kind of learn and make better predictions, and then we can continuously invest. So, our ambition here is to continue to grow that game for a long time. It's definitely an interesting space. And something we maybe haven't talked about that much, but most of our games are in the word and trivia category. And they have their pros and cons. We're quite heavy on localizations. You can't have a trivia or word game in Germany or Italy in English. So it's quite the effort to get there. Then, of course, you have more barriers to entry for competitors. But the thing with Tile Mansion is interesting because it's just a general puzzle mechanic. So maybe it has a bigger kind of global potential. We can try that game out in Asia, for example, and expect to see more traction than with a word game that they don't tend to play in many Asian countries. Okay. Here's another one on payback periods. Do you want to talk about that?

Sure. So this is a combination of the opportunity we see in the market and a game being perfectly in sync with that. So we have World C in the market where we can trust really long curves. We have history going back three years for World C.

Just got to read the question out loud here. Sorry.

Is there a specific reason behind lengthening the payback period of UA now and not in the previous quarters? The timing seems odd from the outside, given that the decision comes six months after starting a more significant UA push. So back to the answer. Yeah, so it's a combination of market opportunity and games being positioned differently and the data side we mentioned. um we want to sort of capture when we have the opportunity to invest in marketing um and uh so that's that's matches sports well and and we have seen that we have the data and to do this and we have the opportunity to to spend them so that's guess what the timing it comes out from it's not not more complex than that really too no

And I think if anything, seeing payback periods stretch over time, that's natural. I'm saying the same thing as you, basically. The more we learn, the more confidence we have. And the more we can invest in terms of bidding in these kind of auctions to find new users, the bigger volume we can get. And we are obviously trying to maximize the absolute profits rather than the percentage. So it's better to spend twice as much at a slightly lower margin than to not be able to spend that money. We talk about that quite a lot in terms of, is there an opportunity in the market? Then we need to lean in. And sometimes, like a year ago, we were kind of stuck at 15 million per quarter, and we couldn't expand even though we had the same ambition. But the window just wasn't as open as it is right now. So we need to take opportunity, really, when we see this. And I'm super happy with the spend levels we see there. Good. That was the end of the question we see here. But please do ask more questions on Twitter throughout the day and we'll gather together and answer anything we can as best we can. Thank you for watching. Thank you.