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

Welcome to MAG's Q2 report. Here to present to you today is myself, Daniel Hasselberg, I'm the CEO of MAG.

I'm Magnus, the CFO.

And yes, we're going to go through the highlights of this period, which is December to February. And what we really are happy to see this quarter is the improved profitability. So we see how our profit margins go up and produce a really solid result at the same time as we have new games approaching the market, and our kind of ARPDAU journey we've been on for several years continues. So very happy to see that.

Yes. So we start by diving into some numbers. We usually look back a couple of quarters, 9 to be precise, on revenue in ARPDAU and look at the performance and development of those. And we see we have 6% year-over-year growth of revenues and 23% year-over-year growth of ARPDAU. We can see that 6% revenue growth is mainly down to currency changes in U.S. dollar primarily, while the ARPDAU was already measured in dollars, so that's real currency effects, and it's more of a true fundamental effect of 23%.

It's probably going to be a good thing for a company to have a lot of revenues in U.S. dollars and costs in Swedish krona going forward as well. So it's a good thing. And of course, what we always want to lift up and really happy about is this kind of long-term trend that we set out 3 years ago, with a focus as a company to really work on the average revenue per user and see how all the teams have executed on that continuously, so great to see that. Again, 23% year-over-year uplift.

Yes. So we move on to our audience KPIs, the daily actives and monthly actives as well as our user acquisition. And we see declining daily and monthly actives year-over-year, coming in at similar levels as Q1 with the daily actives slightly higher than Q1, actually. We see this as an effect of the lower spend on marketing that we've been doing for a couple of quarters now. And the user acquisition comes in at SEK 14 million, which is just similar level as Q1.

And Q4, I think it's been a few quarters now, yes.

Exactly. If we zoom in a little bit on the daily actives and look at the last 5 quarters, we see that the decline is behind us mostly. And we have had fairly stable daily actives in the last 3 quarters of operations.

I think what we're sharing with you this quarter as well is the part of the player base have played the games for more than 1 year. And that's just to emphasize the really strong stability in terms of the user base. So that's why when we go up and down in user acquisition, we can see quite fluctuation sometimes in DAU volumes, but we have a very loyal user base underneath those fluctuations. And we talk about these games as being casual games played by casual gamers, but I think this behavior we see people who play every day for years and years is not super casual in that sense. So very happy to have those loyal players, and that's also what our game teams are doing every day and every week launching updates to these loyal players.

We move on to some of the financial KPIs. Starting out with net sales, which already commented on being 6% up, landing at SEK 77 million, which is an all-time high second quarter of year from the company inception, partly driven by ARPDAU, which again, 23% up year-on-year. We see that as a portfolio of broad effects. Most games have improved over the year. Most notably, in terms of absolute numbers, we have QuizDuel. We have Wordzee contributing to the -- this effect, and SEK 0.06 is again an all-time high for MAG since inception. And finally, contribution on the right-hand side here, we define that as the net sales minus platform fees to Apple and Google and minus marketing user acquisition costs. And at SEK 54 million, up from SEK 42 million, that's again the highest we have seen at MAG since inception. And on the back of contribution, we have profitability at 10%, it's roughly halfway to our long-term goal of 20%, and we show positive cash flows as well.

Yes. I think it's great to see that and continuously adding cash to the balance sheet, it makes us even stronger when it comes to potential M&A and so on. So this is kind of long term building even more potential for us as a company. So speaking long term, again, here we see the revenue and EBITDA margin development over the last 9 quarters. And this is -- can be stretched even further out. I think it's now 3 years. We just continuously grown in terms of revenues and profitability. And just this picture, when you see revenues go up and the margins also improved, I think that shows the kind of the underlying profitability here. So for us, it's pretty clear that we can see the path to those 20% EBIT margin that we're after. So let's look a bit at our game portfolio.

Yes. As usual, we have our evergreens on the top right corner of this picture. And that's the games where we have long, stable revenue streams, relatively high level as well and usually little or no UA support on these games. Some of them will be in live operations and be taken care of by that team as well. We see great performance in these themes, and it's part of the stability and the performance of the company overall. And in the last year, we've seen a couple of movements as well with Word Domination and Ruzzle being added a couple of quarters ago from the growth part into evergreens. And that, of course, gives them a new life, and can continue to exist, but also releases teams to work on new games.

Yes. So we mentioned that in today's report as well the excellent job of our live operations team. So this is really kind of doubling down on events in the games and so on. So great hope for those games for many years to come. But the -- what's the real strength here, I think, is also that we've been able to really double down on new games without having to increase the number of people who work at MAG. So kind of looking at personnel cost year-over-year is very stable, but we have way more people working on new games. And that's -- we see that result here in the new games part of this picture. So we had 6 games out in the market testing just during Q2. So it's great to see a very high activity here in terms of game development. And as well this morning, we announced that one of those games called Title Mansion is now in soft launch. So just to explain the meaning of soft launch is, basically, we've seen strong product KPIs, but the game is not localized to our languages. We haven't built out all the content, and we haven't proven that we can scale in terms of marketing to be kind of globally launched games. So still uncertainties but we see promising KPIs, and that's why we say let's reveal this as a soft launch. So super exciting time for us and fun to be able to talk about the soft launch again. And then, of course, finally, the growth games. These are the biggest teams we have and where we invest most in user acquisition and kind of our flagship titles here QuizDuel and Wordzee, where we expect to see most of the revenue growth in the coming months and quarters. And speaking of QuizDuel, again, since this is our biggest team and it's the biggest user base of all the games, it's really exciting to see us delivering new exciting stuff continuously to the player base. This is a game that maybe for the first 5, 6 years of existence was pretty much the same game experience and now the players can notice that is coming new stuff all the time. What we see in this picture is the Sugar Rush event that ran in February. It was really well received and again, even better than the event we ran over Christmas. So we're measuring and learning and making the games even better, more fun to play and more efficient in terms of unlocking monetization potential. And the other 2 pictures here is from a very recent event. So this is actually from Q3 called Question Streak. And then again, even higher performance than we've seen before. So reaching kind of all-time highs in app revenues. So great to see this movement, and I think the players are really enjoying to see all this kind of development in the game. So summarizing a bit where we believe we can see the future growth for MAG, so we summarized that into 3 different kind of growth engines. One is to continually expand in our kind of games portfolio. So that's both what you see in this kind of a lot of market testing going on, soft launches and so on, but also the potential for acquisitions. So we continue to look at game studios or game IP that we can acquire, and both of those things are going to help us build a stronger game portfolio over time.

Yes. At center of this picture, we have marketing and user acquisition, which is always at the core of any growth strategy, and we'll see that for new games and for acquired games and also for live games, of course, it's something we work on for -- on a daily basis to improvements as much as we can.

Yes. And finally, improving the kind of lifetime value of the existing games is, of course, the kind of bread and butter and what we talk about a lot in today's report as well, how the live games just continued to improve over time in a really strong way. And kind of it's a double positive effect there, both the kind of immediate effect on revenues and profitability, but also it gives more firepower to the user acquisition team because if you have a higher LTV, you can bid higher in the auctions in the market and get your ads shown to more players. So good in both of those aspects. So that's why we, of course, focus so much on that. So wrapping this up, our kind of key focus areas as a company right now is to continue with the live game improvements. We -- it's great to see what we've done so far, but we have a lot more we think we can do. So that's kind of potential for ARPDAU improvement for on a loyal player base is a key for us going forward, and then, of course, new games with so many new games in market testing and a lot of people working on new games. This is where we have high hopes of kind of the longer-term growth for us as a company. Good. So with that, we're going to open up for any questions from people who are viewing this right now live. And then as always, throughout the day, feel free to send any questions to us on Twitter, and we'll do our best to respond to that throughout the day. And just open up here and see if we have any questions that have come in.

So we have a question regarding the cash. So as we talked about, we have positive cash flows, so the bank balance is improving. So of course, as a company should do something with that money. So I mean there are 2 things, I guess, primarily that we use it for. One is user acquisition. So getting new games out in the market and improving awards in QuizDuel and so on, we hope that we can increase the UA investments over the coming months and quarters, and then it's good not to become a cash flow constraint. And then, of course, for M&A purposes. So if you have more money, you can look at potentially slightly bigger targets that would move the needle even more from MAG. So that's how we view that kind of opportunity. And then it's a question regarding what made QuizDuel climb so high in the top grossing charts in Germany recently. So some people follow us on an almost daily basis, I think, looking at the [ Appian ] and such tools. And yes, I think it was weekend before the previous one where we had an all-time high grossing position for QuizDuel. So it's great to see. And what you see there is basically the revenue part, that's not ad revenue. So it's an in-app revenue kind of indirect measurement, I guess. So it's the Question Streak event. So if you're curious about our games, I think you should try and play it and where you see this kind of replayability, and it's possible to play the same event a lot of times and also obvious opportunities to spend some of the in-game currency and maybe refill. Okay. That seems to be it. So again, if you have any other questions, just feel free to write them on Twitter, and we'll get back to you on that medium. So thank you for watching.

Thank you.