MAG Interactive AB (publ)

Hello and welcome to the presentation of MAG's Q4 report. So here to present that to you today is me, Daniel Hasselberg, the CEO. And me, Magnus Wiklander, CFO. So as usual, we talk through the highlights. Since it's a Q4, it's also going to be a little bit about the full year and some context around that. And at the end, we'll have a Q&A session. And for questions that don't come up or we don't have time with or things you think of throughout the day, we're going to be available on the X platform as well to answer any questions you have throughout the day. So to Q4, in terms of highlights, the big thing here is we talked about this when we presented the Q3 report that we had a big update coming in QuizDuel. So that's the biggest game in terms of daily users. And we have an event in that game that we now made a permanent feature. And we've got a huge uplift in terms of both engagement and ARPDAU. So that's the big thing on the product side that came out and delivered on our expectations.

Yeah, and we're summing up a strong probability quarter with a strong contribution coming through to EBITDA and EBIT and also cash flow, as we'll see throughout the presentation.

So just want to mention a bit about this new feature. So we've run an event throughout the year called Question Streak. That's been the most successful event type of the different events we're running kind of continuously in the game. And now with the Question Streak leagues that launched in early July, this is a permanent feature and you play in a leaderboard with 100 players. But at the end of every week, the top 20 gets promoted or the bottom 20 gets demoted. So it drives a lot of engagement, making sure you end up in the right spot. And we can see that engagement then result in increased play time, which is our kind of measurement of the players having fun. But also we see that the in-game economy works in terms of increased spend of in-game currency and so on, which also drives ARPDAU. So it's a really fun game mode and it's great to see like the launch was in July and we're in October and it's still performing really well. So it's a great new addition to this game. So encourage everyone to try it out if you haven't already.

Yeah, and we're closing in the year, as mentioned, and we have a record revenue of 362 million SEK, which is up 16% if we compare to the game revenue of last year, because we have a non-recurring item that we adjust for in that. We haven't adjusted a bit of 58 million, 16% margin, and that's not a typical number for us. It's been very fluctuating, as you have seen throughout the year, where we end more on the 30% level, but the year is 16%. So that's a strong insult.

Yeah. And of course, on the downside for us, when we look back throughout the full year, we had a goal to launch a new game this year and we didn't do that. So that's kind of We're really focused on making that happen now. So at least we end the year with two games that are in advanced testing phase and where we can kind of over the air update and be really fast in iterations and so on. So we have a better start of this year, but we're not happy with the fact that we didn't launch a new year. It was a game last year, which was a big goal for us. So this year we'll make it happen.

So our audience KPI is next, where we see weakening DAO and ARPDO on the back of the lower level UA that we've been performing in this quarter and also the previous one. DAO, however, as we'll see, is relatively flat and stable over the last 45 quarters. And ARPDO is still on an historically high level. And we continue that journey, I mean, going forward. That's for sure. And as mentioned, the user acquisition on a third from a year ago, quite low, and it's our intense focus to do everything we can to bring that up again to higher levels.

Yeah, so let's take a look at the kind of sequential trend of user acquisitions. It's quite a roller coaster, as we see here, going up from around 15 to over 45 and down to 15 again over the less than two year time period. This, of course, has a huge impact on a number of things, as we'll see throughout the report. So, and this is based on kind of the same set of games. So a lot of this user acquisition has been targeting WordC and getting players into WordC and that game is still performing equally well. So this is the market dynamics and our approach of always being kind of ROI driven. So we want to have a certain profitability profile on a user acquisition and that drives our activities, not a scheduled kind of marketing budgets. Then you get these kinds of results. And so far into Q1, we are unfortunately still at this kind of low user acquisition level. When we talked about Q3 in June, we saw some signs of volumes coming up again, but unfortunately went back down in July and August, and that's how it's continued. very very important as you say like it's a focus for us and we still have the same strong set of games so we we just want to like we need to find some more oxygen in the market could be like really great new ad creatives or just that the it opens up a bit and then we can go back to bigger volumes again but the important thing and the message from us is like we focus on making sure we make money on the marketing investments that's really really important Yeah, and here we see the DAU trend over almost two years. And as you see, it's very stable for the last five quarters. So what you see fluctuating is there's quite a small volume of players that we're getting through user acquisition, even in the high volumes. Because they come in with, it's a very high monetizing profile for these users and also come in at a relatively high cost. So there are a few, but they still push the averages in terms of ARPDAU. And they're definitely visible in terms of top line revenue. But the overall DU is pretty stable, which is, of course, good news when you look long term at the potential for us.

Yeah, and on the financial KPIs, we already saw how ARPDAU and DAO are slightly weakened year over year, and that translates into net sales being down to 80 million. And on the flip side of that, we have a contribution which is strong and one of the strongest we've seen. And that translates then into an EBITDA of 30% in the quarter and an EBITDA of roughly 10%. and strong cash flow and we're ending the quarter at 122 million cash balance.

Yeah, so it's great to see how we generate quite a bit of cash. It's a bit of a lag with the screen here, but hopefully you see the same thing as I do. So what we see here is the kind of longer-term development of revenues and profit margins. And they fluctuate quite a bit as we see in this picture. And I think when we kind of put in the user acquisition in the same picture, it's really clear how this correlates with increasing spend, short-term pressure on profit margin, decrease in spend, profit margins bounce up again. And now this quarter, around 30%, the kind of historically high for us. And of course, this is where we want to operate, but with a higher user acquisition volume. So this is a long game for us to continuously move the business to a better and better place so we can run UA and have good margins at the same time.

Yeah, we'll have a look at the product mix as we usually do. And on the right hand side here, we have our slightly older games with sort of no marketing support usually. And on the top side of this, we have a live operated games where we have a live ops teams, which is profitable operation on these long term and stable revenues. And we turn around roughly 100 million sec per year in this side of the portfolio.

Yeah. And on the other side, the growth side, that's where we expect future growth to happen. But it's also where you see like when we have these kind of pretty fast shifts in UA volumes, that's where the revenues also go up and down. So that's where we see a bit of a push downwards this quarter compared to the previous one. But this is also where the focus is for the marketing team to kind of invest user acquisition behind TileMansion and WordC and QuizTool. And on the new game side, as we talk about in the report as well, we've done a lot of market tests throughout Q4 and also into Q1. Two games are in the most advanced stage, so our aim here is to, as soon as possible, to get at least one of those games into a soft launch. Maybe worth spending a minute to talk about that. What is a soft launch to MAG and how do we communicate that? Because we know that there's a lot of people following the activities even of the games that are not officially launched under the MAG account. So I think it's important to get that across. So when we get to a state where we feel like the metrics are solid enough that we believe that this game could be scaled with user acquisition if we have just more content in the game and so on, We will send out a press release so everyone knows that now we have a different view on this product. We're also going to launch it under the MAG Interactive publisher accounts. It's going to be super clear when we decide this game is now ready for soft launch versus being tested in one or more markets. Because these new games we have in development, they are played by thousands of players throughout the testing in various markets and so on because we want to learn more about how the game works. Soft launch, we'll press release. Just so that's super clear. Yeah, and this is our strategy in one slide. So all these cogs need to be there and work together to create growth for MAG. So in terms of the first one, expanding the portfolio, it's this dual thing that we can see throughout the years. We both focus on internally developing games, but also look at M&A opportunities.

Yeah, user acquisition, as always, is trying to maximize that at a profitable level. And that usually applies to new games, but it could also be for several years after a release of a new game. Could also be for acquired games, of course, and even for older live games every now and then. but always a focus to find marketing gaps to capture for us. And as always, we work with improving our live games metrics and LTV, and we have recent examples there with QuizDuel in this quarter affecting our metrics and finances.

Something that I mentioned in the report, and we talked about this for the last year, that we're going into more and more kind of modular way of building games. So the new games, they both are new games in themselves, but they also serve as kind of templates for future games. We build a lot of stuff now that we can reuse in a better fashion. Also, the core mechanics that we build in these games can be plugged out and run as events in the other live games. So kind of it's... It's helping each other in a better way, I think. And we know that investments we make in kind of creating new core mechanics and so on will bear fruit across the portfolio as well as in the new games, which I think is a really, really good step for us in terms of efficiency.

Okay, so zooming out and looking at the last five years of revenues, we see a growth throughout these years of average 20% CAGR in these years. We also note that we have an overall profitability during this period. And in the last three years, we also have individual profitability per year. That's something to see.

Yeah, and when you think back to the previous slide we've shown, this is really those engines at work in terms of we have both acquired companies and games, and we have launched internally developed games, boosted LTV and run user acquisition according to our profitability requirements. That's how we've been able to double the size of the revenues while remaining profitable and generating cash. So it's a combination of all these three. So if we wrap this up and look a bit ahead, like Q1 and onwards, we're super excited about the potential for QuizDuel, both in terms of what we see the Quest and Streak Leagues features have brought us, but also the stuff that's happening from that team. It's working really fast. And something we also touched on slightly in the report is that we tried different kind of core mechanics in the game as well, which I think is really interesting. So in several of our games now, we're testing with time-limited events where we have a different core mechanic from the one that's in the main part of the game. That's both to provide variation to the players, but also to enable higher monetization in a game like Quiz Duel. So we tested with a more match-three-like puzzle mechanic in Quiz Duel. in the summer first with a few thousand users to see like, will they accept playing a different kind of gameplay? And it looked really positive. So last month we tested with several hundred thousand players in the game. And there we can see, similar to the Quest and Streak leagues, that both time and ARPDAU go up in the game. So this is really encouraging in terms of what we can do in both QuizDuel and in our other games. And yeah, I guess we'll expect to run at high profit margins going further as well. If the user acquisition doesn't change radically in the next couple of months, probably going to be in this 20-30% EBITDA margin region for a while until we can get things moving again on the marketing side. And of course, a lot of excitement around the new games and hopefully we have something we can share with you in a not too distant future in terms of soft launches. So with that, I think we'll check if we have any questions coming in in the Twitch stream. And as I mentioned in the beginning, other questions you can also post throughout the day on X, trying to get used to calling Twitter X. Yeah. Okay. So here are some questions that have already come in from Twitter, so we can take them here in this forum as well. So what's your best prediction for when UA will ramp up again? It's multiple questions. I can take it one by one. So this is the annoying thing to me with user acquisition in the industry we're in. We can control some things. So working with the games and make sure they have a higher LTV, we can work with kind of the early funnel, how we can optimize the storefronts and how we can optimize our ad creatives. But we're also dependent on what's happening around us in the industry. If there are huge game launches going on at the same time, It will kind of blanket the market for a bit until that kind of goes away. So it's kind of unpredictable. So we try to focus on what we can impact, which is kind of product quality and finding new type of messaging in our ad creatives. But it's hard to predict. I think that's partly why we chose to look at these kind of multi-year trends and see like over time it works pretty well for us. But it's very hard to know what the next month looks like and so on. We hope we'll see some more oxygen coming in soon so we can ramp up. Second part here was, has the model been changed since the last push? So I guess maybe that refers to kind of payback time and so on. So we want to see the majority of the money back within the first six months. And then we've had a little bit of kind of do we want to see 80% or 90% and so on. It depends a bit on volume. And now when we have lower volumes, there's no reason to really compromise on the return profile. When we had this huge spend, that's when we talked to everyone about that last year. We see the opportunity is so big now. We can actually make... a bigger amount of absolute profits by letting the margin go down a little bit, like extend the payback window. Will the next UA push coincide with profitability different to the last UA push? So this is... This depends, I guess, on the volume. So say that we can expand somewhat, but not as much as last time we increased UA, then it's pretty likely that we will both increase UA and continue to show a good profit margin. If it really opens up, it's going to look more like last time again, like revenues go really quickly, short-term profitability will suffer, but it's going to be for a good reason because we're like, investing money with a good profitability profile over time. How's the UA venture with QuizDuel in the US gone? So this is someone who's been looking at some of the surveillance tool of mobile games. So we have done some tests in the US market with QuizDuel. Really exciting in terms of we saw ARPDAU numbers that are way higher than we've seen, for example, in the German market. And we recognize that from our other games. the US consumers have a tendency to spend both more easily and in bigger numbers. And it's great to see that Quistual can unlock good monetization potential in the US market. So what we're working with now is to make sure the game can retain players as well. Of course, we have amazing content in German after being 10 years now in Germany. So we need to work with the content and how we present the game to a US audience to get the retention profile to a better place. But the ARPDAU looks really promising. Next one is, you have a team of about seven people working on older games. I guess that's kind of the live ops that we're talking about. And three working on a probe. Okay, it's actually two. How many are the rest of the developers? I think the company feels big compared to the games you have and release and so on. Roughly over the last few years, it's been between 15, 20 people working what we talk about as new games, or you can call it a general company, you can describe it as R&D. So say 15, 20 million of costs for that activity on a turnover of 360 million, I think it's not unreasonably big. But of course, you should expect that that activity generates new products that come to the market. That's our expectations as well. What I think I talked about in a few reports maybe half a year back or so is when a game does come out, it tends to generate enormous values, paying off maybe five or even 10 years of investments in making new games. It's games that will generate hundreds of millions of revenues and with a good profitability profile. it easily pays off the R&D. So I think, to me, it's twofold thing. One is the lead time is very frustrating. And when you have We want to launch new games every year and then you have a certain hit rate. So maybe 15, 20 people is actually not enough, but I think we try to balance growing profitably is kind of our tune that we try to follow. So that's where we think this is a size of new game development that we can handle in a good way. OK. Can you provide more details on the new puzzle mechanics being tested in QuizDuel and its potential to increase ARPDAU? So this is a really, really exciting thing for us. So as I mentioned, we tried with different mechanics and see if the players would accept that. And that looked really positive. This kind of, we call it to blaster mechanic, is kind of a match three style gameplay. Those games tend to have 50 cent plus ARPDAU compared to our average of seven. So if you can get a big part of the audience engaging that kind of gameplay on a relatively frequent basis, it's a huge potential to kind of up the overall ARPDAU for Quiztool in this case, with of course a big goal being able to then increase user acquisition behind Quiztool. So we're going to work intensely with that and see where we can take it. I think that's it for now. So again, if you have further questions or you want to follow the answers to other questions that have already been posted online, so check out the X account for MAG Interactive and we'll answer those questions before the end of this day. Cool. Thank you so much for watching. Thank you.