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

Hello, and welcome to the presentation of MAG's Q3 report. So here today and present is me, I'm Daniel Hasselberg, I'm the CEO of MAG.

And Magnus Wiklander, CFO of MAG.

So this is a bit of a special quarter as a lot of the exciting stuff actually happened in June, so starting of Q4 rather than during Q3. So we're going to talk about both the quarter obviously, but also some of the events that happened in the last few weeks. So highlights from the report. The -- when we talk about Crozzle in the Q2 report, we said, okay, we're leaving soft launch now and it's time to go and scale up the game, which for us means gradually increasing UA and as we see data come in, double down when we see that it's working. So it's gradually been growing through April and May and really at increased speed late May and going into June. So very excited to see that momentum. Another highlight is the ARPDAU. So the average revenue per user across the entire portfolio is up 14% compared to last year. So I think this is a much bigger uplift than you usually see in a single quarter and also given that we're talking here about 1 million DAUs, it's huge to make that kind of uplift. And it's primarily QuizDuel, our biggest game that has done a lot of really good things during the quarter in terms of how we run the events and so on that's led to this great win. And thirdly, we have a really interesting pipeline of new games that I'll talk about in a couple of minutes. Now let's start with Crozzle. So this is, of course, our new game. It's a PVP crossword game and it's currently available in all English-speaking markets. And we're scaling up quickly, as we mentioned in the report already now in June. It's the third biggest game in the portfolio. So it's only Wordzee and QuizDuel that are bigger than Crozzle at this point. And if we can keep the momentum, so some numbers continue to look good, and we can invest at this pace, it's going to be the second biggest game before the end of Q4. So super exciting momentum. And I think given that we had a really pretty stretched out soft launch for the game, I'm happy to see that the outcome. So we went into the soft launch with a really strong product in terms of daily engagement and so on, all the things you want to see to take a game to soft launch. But then during this period, we doubled the ARPDAU and made it into a product that can really can scale with UA. So I'm super proud of this, and I think the team is super happy to see this result and see the next big game come out of MAG.

All right. So we'll have a look at the product mix on the right-hand side here as always, we have the older games where the higher revenue ones are taken care of by our LiveOps team. There are a few things we can note with the net sales numbers we show in this part of the portfolio over the last year, so the year-over-year comparison but also in the few -- last few quarters. Of course, we have the currency effect with the drop in dollar during the spring of this year. We have the divestment of Primetime, of course, beginning of this year. And in conjunction with the release of Crozzle, we moved that out last quarter and put that into the growth section of the slide. Yes. And on growth part, of course, great to see Crozzle there being part of building that revenue piece. And also, as we mentioned, a lot of the growth it's in June, not in March to May, but still it's part of the SEK 46 million. And I also think on that topic of exchange rate, the SEK 46 million here would have been SEK 50 million if you had the same like exchange rate situation as we had a few months ago. So a bit of growth is actually hiding here behind the fluctuations in currency. And then on the new game side, we have 2 more games coming out to test during Q4, both in the word category, both really interesting concepts. So we're excited to see those come out. And I also think the fact that we're now building on this modular platform gives these games a lot of stuff for free. So this can make us much faster in getting more new games to market. So we expect a higher pace going forward as well. And I think another component of this way of building, that's important to understand is that when we build a new game, since they're built in modules, we can take a core mechanic and actually run it as an event in one of the live games, so we can start seeing a return on investment even before we get a game to an eventual global launch. So I think this is a really valuable way in how we work now. So one of the games we have been testing since a while back, which is a tile matching mechanic, it's going to run live in Wordzee later this year. So that's one example of how we can take things from the R&D side, actually start producing revenue even before a potential launch. So look at our audience KPIs and then after our financial KPIs as usual. We see user acquisition is up slightly from a low level a year ago. There is some effects from the Crozzle scale in this, but most of the scaling is post quarter. So in June, again, so to be clear about that. DAU is down somewhat year-over-year. And then we already noted the all-time high ARPDAU of $0.071, and that's, of course, in dollars, so not affected by the currency per se. The increase in ARPDAU is from improving the live games and primarily from the QuizDuel work in the quarter. So that's that. And on the financial KPIs, we have net sales down 10%. So that's SEK 7 million year-over-year. That translates more or less into our adjusted EBITDA on the right-hand side here. However, looking at the U.S. dollar net sales, we see an increase of 1% organically year-over-year. So that shows the stability we have in the portfolio. We also note that post quarter in June, the rate of UA we're running at is more of a natural hedge on the U.S. dollar. So we have income and costs more or less balanced in USD. So that mitigates some of the risks in a potentially moving dollar going forward. And overall, a healthy underlying cash flow in the quarter, and we ended SEK 94 million in the bank.

Yes. And here, we see this picture showing the dynamics of increasing UA, leading to growth in revenues and short-term push down on the profit margin. So this is because payback times for user acquisition is more than a quarter, but you recognize the costs immediately for the investment you do in UA. And given what we see right now in June, if this momentum continues, we continue to see great numbers. We can invest in UA. We're going to see this similar pattern again. So growing revenues, but also pressure down on profit margin. And this is just the natural dynamics of how it works when you invest and have a payback window. And of course, the money we have in the bank, we want it to be out and working and generate a much better return than it does on our bank accounts. So we're very happy to see more money actually out there working for us and generating future profits. So that's our goal to just lean in and invest as much as we can in profitable UA going forward. And then this dynamic is likely to be repeated as you see in this picture.

Yes. Having that said, it's great, and we're happy to see all the growth engines being at work here. So Crozzle out on the new game expansion, portfolio expansion area, supported by UA, of course, as is other games in the portfolio at the same time and improving the LTV and ARPDAU of our live games as a final component here on the growth engines.

Yes. And if we just take a look ahead here where we stand right now and where we're going. So of course, scaling up Crozzle is a huge focus for us. And that means both, of course, investing more than we see that it works. So this is both iOS and Android primarily in the U.S., but also in other English-speaking markets. But we also have, of course, a lot of other opportunities in terms of expanding to more languages. We're going to localize the game to all the major European languages and potentially beyond. And as we've seen with our other games before, you can continue for years to expand on games both geographically, but also adding new events and features to the games. So I think we're only at the very start of this journey. But in the next few months, it's primarily doubling down on the English-speaking markets and then gradually starting to add more languages as we go during 2025. And more new games to market tests, as I mentioned, it's really exciting to see our pace heating up and more new interesting word games coming out. I think we showed historically, we're really strong in terms of innovation in the word game space and also kind of the polish levels of the products that we released and so on. So I think a very exciting year ahead of us in terms of getting more new games out to testing and see how they can take on the market, especially as we see how well it works now with Crozzle like running it with the user acquisition and scaling it up. It gives us more confidence in our pipeline as well. And finally, Team Play. So we've been testing. We mentioned that in the previous report, we had a beta test with an early version of team beginning of 2025. We have now iterated on that. So a more complete version of what we want Teams to be is pulling out in a few markets. So Sweden is one of them. So as of 2 days ago, you can play Team Play in Sweden. So I think if you download the latest version of QuizDuel, both iOS and Android, you can form a team with your friends and play this summer. Going You're going to see that it's really a fun way of engaging with QuizDuel. But also, if you think about it as a games company and how you operate a game, you can also see how there are a lot of interesting ways we can promote parts of the game that we want the players to engage in by giving activities for the teams to perform. So both are really fun engaging mode for the players, but also a great tool for the operations team at MAG. So I think it's super fun. I think you should all try it out, and I know the team is very happy with what they shipped this week. And on the further plan for QuizDuel, when we have kind of fine-tuned it during the summer, of course, the next step is going to the German-speaking markets, Germany, Austria and Switzerland, which is the core of QuizDuel's business. I think by that, we're closing off here and see if we have any questions that are coming in here live during the video presentation. And as usual, we also answer any questions online throughout the day. This quarter, we also have an account set up on Bluesky. So if you prefer that platform over X, we're also responding on Bluesky. But let's see questions that have come in now during the video stream.

First off, great that you see nice development in Crozzle and we'll invest heavily in UA. When you mentioned there's a good chance that we'll be #2 in the portfolio end of Q4. Is that without launching Crozzle in other languages? So yes, I think we can achieve that without going to further markets, then see, maybe we will still, within Q4, get to another market or not. But there's enormous room to scale in the U.S. speaking -- or the U.S. market and English-speaking markets overall. So we don't put any of that into account that we'll have further markets, that's additional. Do you see any cannibalization between Crozzle and Wordzee, even though they are slightly different games, but within the same genre? So we can't really see that and as the question writer notes here, they're a bit different, but the genre is also big. It's like there are a huge amount of word game players in the U.S. market and in the Western world in general. So we don't see this as a big challenge for Wordzee, it's user acquisition that we scale up, Crozzle, for example, and we don't see them cannibalizing each other in that sense. So that's not a concern of ours at this point. Next one, is Crozzle when compared to other games, the best-performing title you have released at a similar stage and is Crozzle ad or IAP driven? So I'd say when you look at things as play time, which are one of the key things we look at. It's one of the top games we've ever released. I think it's in tight competition with Word Domination, both of these games, we see like players spending about an hour or slightly more than hour a day on average. ARPDAU-wise, it's by far the best game we've launched. So that's why we're so excited and maybe that's why it's so competitive in 2025. Is it ads or IAP driven? So it's both. So I think that's also part of why it works so well currently in the UA scaling phase that we have both the strong ad monetization component but also really healthy in that economy. So when we run UA, different types of campaigns can both work, both with more IAP or blended focus or ads focus. So I think that's one of the strong points for this game. Do you have any other games in the pipeline that show exciting key figures? So yes, we have a few games that are already out in market testing. Some of them show very interesting numbers, I'd say. And then we have 2 that are not in testing yet, but where we conceptually think that it's the right thing to do. So we'll -- as we have done historically, we continue to do the same thing. When we see -- this is so solid, we believe it's likely to be a new scalable product. We will start talking about them by name and presenting more of what the game actually is about. But I can say that we're, in general, excited about the pipeline. You mentioned the target of SEK 500 million and 20% EBIT, can you give an approximate picture of what you expect for UA as you get closer to your target, assuming you don't accelerate for further growth? Is it about 20% of revenue then? So maybe that's a question for you, how to think about modeling the business.

Exactly. I think that's a short answer, and that's more or less, yes, that's a reasonable level to as maintenance type UA, if we get to a flat position with these numbers. So it's a good level. The longer answer is written down, and I can push again for our media article published a few years back, going through all the dynamics with the UA supported, including like a maintenance type level of UA for the business. That should give more details.

Okay. Then we have -- is Crozzle pretty much finished as a game? Or do you have a lot of things to add to further improve ARPDAU? Ad revenue has been weak for a while now. Is it a conscious shift to get higher IAP purchases? Or is it just because the dollar is weak and the number of players has shrunk? So I guess this is -- it's a 2-part question. So is it pretty much finished as a game? Definitely not. So I think Crozzle is still a very kind of clean experience in terms of it's hugely focused on just the core experience of playing opponents and playing -- have multiple games running at the same time, something that we see strength in the long-term retention. We have a few relatively simple events in the game. But we have a lot of stuff that we haven't done yet. So for example, having various side course, so events in the game that's using different game mechanics, having different types of mini game, word games and so on to tie in closely with the advertising and so on. So there's a lot of things on the road map for Crozzle, so I think it's going to continue to develop for at least the next couple of years in a pretty significant way. It will both improve ARPDAU, but also a lot of the stuff is about building a foundation for a game you can do interesting live operations on for the years to come. So that's where you want to have a lot of variation and events you can run that tie into each other and so on. So it's a long path to building something that's closer to QuizDuel, for example, in terms of variation and complexity. And that revenue has been weak for a while. I think this addresses the entirety of our business that adds our IAP has stayed more stable than ads, for example. So I think ads usually correlate pretty well with DAU as kind of you have a certain amount of ad exposures per daily player. And there's a limit to how far that can go without kind of punishing retention. But no, we don't have a conscious decision to say, let's have less ad revenues and more IAP. We want the games to be dynamic enough to both have strong ad monetization for players that don't engage with the kind of in-app economy, but also have a deep in-app economy to a lower like extensive spend and a good experience if we want to spend money in the game. So that's not -- we're not going in any specific direction here. We believe you need to have a hybrid economy to be competitive. And the last one, what's the rough split between ads and in-app purchase in Crozzle? So that's one, we actually haven't shared. So we'll give that a think if we would share it or not. It's slightly sensitive in terms of competitors and so on. So I'm not sure we're going to go down that. But what we can share that there's a significant portion of ad revenues in Crozzle as well as in-app. And I think that's part of its strength. So by that, I think we wrap up. Thank you for all the interesting questions. And then we'll continue online to see if there's more stuff to answer throughout the day. Thank you so much for watching.

Thank you.