MAG Interactive AB (publ) (MAGI) Earnings Call Transcript & Summary

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 studios, 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 inner purchases, subscriptions and in-app advertising. And of course, as a free-to-play developer, there's 2 pieces that are equally important. You need to make redefined games, but you also need to be on top of data and analytics, both from a kind of 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 QuizDuel that came out globally just in May this year, all the way back to games that are more than 8 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.

Yes. And since the beginning of September, we also have a new member of the portfolio Primetime. And this is a different dynamic with higher engagements, 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 presentation here today.

And 2 games that we've talked about a lot lately, and we'll continue to talk about a lot are the games where we see the biggest potential for high-growth in the near term. It's Wordzee and New QuizDuel. And Wordzee 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 Wordzee. We see also a very exciting road map 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 Wordzee and all of these things are in -- with having kind of long-term engagement in mind. Can we build the next evergreen game for MAG? We already see that we have the, by far, strongest ARPDAU 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. They're 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 the users now play a new version of the game to date. And the ambition is to - and the target is to have that done before the end of the year. And one milestone in that work was to actually close down the older 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 [indiscernible]. So we were #2 in Sweden overall downloads in the weekend.

So it's big migrations of players, but it's really great to see them actually coming over, 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 the Wordzee and New QuizDuel, where Wordzee is primarily fueled by user acquisition and New QuizDuel, 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 end of year, but longer term, the continued growth would 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 QuizDuel for this coming financial year.

Exactly. In the top right corner, we have our evergreens. And as ever that's Ruzzle and WordBrain being there with relatively high revenues. And with well and sized teams and now marketing support still being stable in the income and therefore, producing good margins and the profits. And we expect to have them with us for a long time going forward.

Yes. And then to Primetime. 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 around possibility to play synchronously 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 mobile games. And of course, we hope that -- I mean, over the years, more than 100 million people have played QuizDuel. So having this new exciting thing to come back to try out in this New QuizDuel is something we can see -- can drive a lot of attention in the lapse 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 we have in New QuizDuel. And of course, you could have live shows in multiple games in the MAG portfolio, but the most obvious fit is, of course, New QuizDuel, 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 as -- and with some [indiscernible]. So we are SEK 20 million upfront payment and an earn-out based on profit share. So the earn-out will be paid after the future profits of the acquired company over the next three years. The deal was closed on September 1 so that was quiet sort of 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.

Exactly. It'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 MAU and DAU 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 ARPDAU 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 Wordzee with its strong monetization, but also the conversional users from old to New QuizDuel. But also if we look broader, the entire multiplayer portfolio has improved ARPDAU since last year. So it's like a broad, general ambition we have to work with that.

Yes. 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. So it's great to see.

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

Then one comment there on the in-app revenue. So 76% increase is a lot. And it's also, of course, driven by, with all of new monthly unique payers which is another KPI you'll follow in our reports. So a lot of more players turn into payers, especially in Wordzee, and that really helps user acquisition algorithm. So technically we will 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 a paying conversion in exactly.

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

Yes. Yes. And this is a picture that shows the development for MAG over the last 2 years. And 2 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 graph here shows it's continuously improved over the last 8 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 had stretched out the time and over 2 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 plus -- 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 our Q4. But what's noticeable in this picture is, of course, is that the drop is usually maybe around 10%, that was a year ago, is bigger this year. And we attribute that to the COVID, so-called COVID bump we saw in Q3. So we got millions of players coming in, 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 I 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 can 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 2 new games. So our games tend to peak after 2, 3 years, so 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 2 fairly new games out in the pipeline.

Exactly. And of course, we ended the year with a Primetime acquisition, which we're excited about, and we're now at hard work to integrate that into first QuizDuel. And we see lots of movements in markets. 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 upwards, both in kind of product development and user acquisition. And we also see that this strategy we laid out work really well for us. So we're going to continue to invest in optimizing infrastructure around analytics and back-end, 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 games. So that's a 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, 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 where some of the questions are coming in. So from the top here, regarding the UA cost, how much of this went into new New QuizDuel? So the vast majority of all user acquisition in Q4 went to Wordzee. 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 Wordzee 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 the 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 on New Quizduel that came out have a much more kind of fully fleshed avatar system. So you can make really great-looking and fun avatars that are used in the game. Some of that's locked into subscription package as well. But it's going to 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 has gone from 10% of in-app revenues or something to almost 30% of in-app revenues coming from subscription. You -- how sustainable do you estimate the ARPDAU increase as many players complain about longer and non-removable ads? Does this generally create more churn? It's also a really good question. It's something we look at it, 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 is 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 contain ads. It's one of the most frequent complaints you see in reviews is 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 6 weeks. So it's really, really early days. But what we can talk about is that it's a prime priority for -- both from the Primetime side and for the New Quizduel team. So really hard at work integrating this, and then we'll see about time line, 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 out 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 QuizDuel players to New QuizDuel 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 their games in parallel, I believe. But some people just don't want to move, and we see a much stronger performance, ARPDAU wise and engagement wise in the New QuizDuel. 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, how -- what that -- what kind of effect on churn you get from being a forcing update into a new SKU. But it looks really promising. So we -- 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 QuizDuel. If you migrate the whole player base from QuizDuel to New QuizDuel, what will ARPDAU be if everything will stay the same? So ARPDAU is significantly higher in New Quizduel versus old Quizduel. And then, of course, this is the million dollar question. Will all of the old QuizDuel player base behave as the ones that are currently playing New QuizDuel. Of course, we hope so, and then the ARPDAU will go up on a pretty big user base, and that could create a lot of value for MAG. But it kind of -- 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 New QuizDuel. 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 are -- we have a few different kinds of synergies we see with Primetime. One is like the stand-alone Primetime app is a successful game or app or a show or whatever you want to call that experience. But it works really well in the Nordics. It has a strong depreciated brand and all traffic is organic. But we're -- I think we can help based on the kind of 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 Quizduel, 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. So 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 a time line 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 8 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, user acquisition and optimizing back end. And 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 Wordzee, 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 New QuizDuel 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. And those are really exciting business model, of course. And 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 to something everyone shares, both kind of within a 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 Wordzee, for example, I think there's -- when I look at the roadmap for Wordzee, 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 Quizduel as well that it's a much better foundation than old Quizduel that makes it possible to add a big thing like live broadcast into the game. Yes. How will the additional purchase price of SEK 80 million reflected in your balance sheet from the 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, and then we will publish that in January. Yes. Why don't you include subscriptions in Quizduel, Wordzee? So that's on the road map. It's going to come in Wordzee as well. This is again about priorities, and we have a very, very strong ARPDAU in Wordzee and a strong conversion to payer. So we see that like 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 2 games in production, how many games do you have in production stage green lit 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 a WordBrain and WordBrain2 and Wordalot. And then we have the Wordzee 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 green lit and in 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 QuizDuel to New QuizDuel? No, we see -- I think we see both ads and IAP performing better in New QuizDuel. The mix is slightly different. So in New QuizDuel, we have more rewarded ads. So if you play the games, you know that there is a game mode called Arena where you can kind of replay against the leader board in different categories and so on. And if you run out of tickets, you can look at rewarded videos to get more tickets. So I think 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 mix overall, which is, of course, very positive. Do you expect Primetime's business, excluding New QuizDuel 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 stand-alone 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 stand-alone Primetime business? So it's -- I think it's too early to tell like where it's going ahead. But we -- 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 QuizDuel integration.

Are you able to increase the 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 talked about 6 to 9 months ROI or robust time for us, where, of course, it's -- we aim to be at 180 days. So -- but we can extend it further. And no, yes, it's a 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 the campaigns. It's really kind of -- it's a lot of moving parts, and that's why 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 kind of what the value we can model will come from what we did last week and so on. So -- but the aim is always to increase if we can, but we will not do it if we can't keep our kind of profitability goals. Okay. Can you say something about performance and future of Ruzzle, WordBrain, Word Domination?" So yes. I mean, Ruzzle and WordBrain are in this kind of evergreen category where we see stability or actually in Ruzzle's case, it's been growing compared to last year. Thanks to great work on ARPDAU. And we -- 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 Ruzzle. So it's also getting an improvement in terms of in-app revenues. And I think it can be another good year for Ruzzle. Word 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 road map here for that game, but as I mentioned earlier, majority of the UA spend has been behind Wordzee 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 will be effected from the coming changes of IDFA?So this is the just to explain what IDFA is, so that's identified 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 tracked my behavior. 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 with iOS 14 launched, and then they said that 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, is 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 really hard to predict, but it's, of course, something that we and every other company in the mobile business prepares for and try to handle in best possible way when it happens. So not a great answer, but that's what it looks like.

Yes. What exactly is a research and development deductible of SEK 7.6 million, approximately? That is we -- the Swedish tax authorities give a subsidy or a tax relief on research and development, [ forskning och utveckling ] in Swedish. And we have updated that a couple of years. And we also, on a running basis, we make that debt deductible, so SEK 600,000, SEK 700,000 per quarter roughly on an ongoing basis. And this number is the back retroactive amount that we have applied for.

So we'll count on those SEK 600,000, SEK 700,000 quarter going forward in continuous reductions of our salaries costs. So that's a good thing. Thank you to the Swedish government. For that, I guess, will Primetime's income be regarded as ad revenue? So we haven't talked about how to define it, but I'd say that sounds reasonable. And I mean, it's also at least in accounting, I say, the big difference between ad revenues and IAPs that on IAP also have a cost of revenue like the platform fee and ad revenues is net.

Yes. So we do differ between the programmatic ad revenue and Primetime's revenue, which is different in the way it is sold and that makes a much closer relationship with the brands advertising, but it's still sort of under the ad umbrella. So it's different, but it's still out.

Cool, thank you for all the great questions. We're wrapping it up here. And if you had 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.