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

So hello, and welcome to the presentation of MAG's Q2 report. So today, we are not having a live feed because I'm down with a fever here at home, but we'll do our best to do a good presentation of today's report, and there will be Q&A online on Twitter throughout the day. So -- but let's look at this. This is the December, January and February time frame. We're very happy to see that we are doing the highest Q2 revenues ever as a company.

And we look at how our profitability improved sequentially on the back of stable UA levels. Starting out with our audience KPIs. We see the year-over-year trend continue, as you've seen before, with lower daily actives and monthly actives compared to last year. This is an effect from the lower but high-quality users coming in from our UA investments. This is something that comes through also in our ARPDAU, which is in a US 0.078, which is 32% up from the previous year. And the UA in question is up from SEK 14 million to SEK 41 million in this quarter. So that's a slightly lower level compared to Q1.

Yes. And one of the signs here of the increased quality of traffic we get in is also the IAP revenues, which are up 55%. So more purchases happening inside the games. And even though DAUs were slightly down, the IAP revenue is up 55%.

And to get a slightly better feeling for the dynamics here. We look at both the daily actives and user acquisition on a sequential basis, and we start out with daily actives, and they're up 8% sequentially. So that's compared to Q1. And the underlying reason for this is both the UA for Wordzee and the QuizDuel, which has both a stronger retention and has some seasonality built into the dynamics as well. So we see that $1.3 million DAU in Q2. And as before, we see that 70% or north of 70% of our users in this quarter were also active a year ago. So that's a testament to the commitment and long-term engagement that we get from our players in this -- in our games. And turning to UA. We have already mentioned that -- UA is declining sequentially quarter-over-quarter to SEK 41 million. And in Q3, we see slightly lower volumes again so far in the first 4 weeks. And at the current pace, we expect the profitability to improve further going forward. And looking at this, we also sort of note and reflect on the fact that when we see a window open in the marketing area, we need to look at the models and act and a little bit run with the opportunity. And at higher volumes, we will adjust our ROI targets slightly down to make sure we don't sort of miss out still running at profitable levels, of course. And now with slightly lower volumes, we're adjusting our ROI targets up a little bit again back to closer to what we have been before.

Yes. And of course, we're just 4 weeks into Q3. So we know kind of what investment level will be throughout the quarter. But as we said, slightly lower pace right now than in Q2.

Good. So summing that up into our financial KPIs. So net sales is up 25%, again, strongly driven by Wordzee and UA, of course, and with a strong U.S. dollar behind us as well. We also see, again, our ARPDAU, which we mentioned was up 32% year-over-year. This, as always, is free of currency effects. So it's a more clean measure of portfolio performance. And our contribution is SEK 43 million, which is SEK 11 million down from last year. But with SEK 27 million more spend on UA, it should be taken as a strong point and a sign that we're working from a higher level now than a year ago.

Absolutely. And if we take a step back and look at kind of what's happened to the big picture with the company in the last year, we can see that we have increased the revenue level 2 by 25%. But at the same time, we've built the cash position. So we're both investing a lot of user acquisition to get more revenues coming in, and we're building cash at the same time. So we're definitely in a stronger place right now than we were a year ago. If we look here at what happens in the more short term when you invest in user acquisition, it's very clear that when UA is ramped up, the revenues respond, you see players come in and spend money in the games, but the payback times are longer than a quarter so that will put pressure on profit margins. So if we look here at this picture with UA investment levels at the same time as the revenue and EBIT margin is you'll see the EBITDA margin bounces up immediately when we stop accelerating the UA investments. This is exactly what we talked about for several quarters now when we invested more in UA, profit margins will go down. And when we don't increase UA, you will see them come back again. So this is what it looks like, and this is exactly what we expected. And then we'll see how Q3 pans out in terms of UA volume and profitability margins. But this pattern is very clear, and this is what we should expect. Here, we see the correlation between ARPDAU and revenues. And it's a very strong correlation, and this is how we look at the future as well. ARPDAU is a core KPI for us to follow and work on. And the UA traffic, we see come in have a much higher ARPDAU on this average of $0.078 as well as we are working with the current live games to continuously improve the ARPDAU of the products. We expect that this can continue to improve for a long while into the future.

Yes. And we'll have a usual look at the product mix, and we have a slight change where Word Domination now has been moved into live ops since it's not been growing for a while. And we also see that we have Apprope focusing on Tile Mansion as a growth game at the moment. And as always, the right-hand side here is our games with a slightly higher volumes of revenue, very stable revenue over time and with a high profitability and a relatively small team running the games. And overall, we turn around roughly SEK 100 million on a yearly basis in this sort of area of the portfolio.

Yes. And yes, as I said, now Tile Mansion full focus for the approach studio. So exciting to see what comes out there in terms of new updates. And then, of course, we have QuizDuel and Wordzee, which are the biggest games and where we expect to be able to continue to grow in the coming quarters as well. And on the new game side, we have the wrapper project that we talked about that we're building these kind of beautiful worlds and meta games, where -- but we have a very agnostic approach to the core mechanics. We can build multiple games in multiple game genres but reusing this tech that we're building, and we have the first test using that take out in the market right now. And we also have a multiplayer game out in market testing that looks really interesting. So hopefully, we can come back shortly and talk about how these games are developing. We're eager to get new stuff out, but it's always like -- we're very metrics focused and disciplined in terms of evaluating games. So we continue to work, and hopefully, we can talk about what's happening in those games shortly. Here are the growth engines for MAG. So speaking of new games, that's one of the ways for us to create growth to expanding the portfolio. But also when you look at M&A as an opportunity to find new games or studios to acquire. So that's ongoing conversations every quarter. And this is, of course, all about finding the right -- good fit for us and then we'll definitely act on that.

And we work every day to maximize the volumes and profitability of the user acquisition we do for our live games.

Yes. And of course, working on the lifetime value of our games is something most people at MAG are working on, on a daily basis. And I think it could be useful to take a step back and look at the last 4 years of having this as a growth strategy. So what does it look like when we go from about SEK 40 million of quarterly revenues to almost SEK 100 million. It's exactly this. So we can see here the launch of Wordzee and then the launch of new QuizDuel and the acquisitions of Primetime and Apprope. And then the UA step change we saw last spring and the launch of Tile Mansion during the summer of last year. And this is exactly what we -- when we think about the future, we believe these are the right engines to work with to create future growth, and we look forward to continue to working with this and create a growth journey in the coming years as well.

Yes. So looking ahead now, we -- based on our slightly lower volumes of UA, we're increasing our UA targets for ROI slightly. And on the back of that, we also expect to see somewhat improving profit margins going forward.

Exactly. And then, of course, looking at new games and also the continuous improvements of the live games, so that will give us opportunity to grow on the current user base, of course, but also invest more in UA when we see the opportunities open up. And as I mentioned in the beginning of this call is we will have Q&A online today. So feel free to address us with any questions on Twitter throughout the day, and we'll be happy to do our best to respond to that. So thank you so much for watching.

Thank you.