Hello, everyone. Thank you for joining us today. This is the earnings call for the first quarter of G5 Entertainment. We are quite pleased with the results. The top line went up about 132% year-on-year. We had 27% growth quarter-to-quarter compared to Q4 2016. The user base, average monthly active users went up 109% year-over-year. Monthly unique payers went up 117%. Nice growth both in terms of the top line and the underlying audience. The average revenue per paying user, as you can see in the report, also went up about 10% year-on-year. There was a slight decline compared to Q4 2016. Probably has to do with the seasonality and also the fact that there was a larger inflow of new users during the first quarter. Anyway, good result. We're quite pleased with that.
The drivers behind the growth in the first quarter were our licensing Hidden City, once again, occupying the number one spot in terms of total revenue contribution to the company's top line and the growth. On the other hand, we had good progress with our own games, Mahjong Journey, The Secret Society, and Supermarket Mania Journey during the Q1. That contributed both to the growth of the revenue and to the expansion of the margin. Overall, I think the most important thing that the first quarter demonstrates is the inherent leverage of our business model. The larger the revenue, the higher the margins. It doesn't really matter whether it's licensed games that drive the growth or own games. It's just that the effect on the margin is going to be different.
In any case, the higher the revenue, the higher margins we're going to see with G5. That's because most of our costs, after user acquisition and store fees are taken into account, the rest of the costs are pretty much fixed. We don't need to scale our staff as the game scales its audience, basically. Or at least we don't have to do it at the same rate as the growth of the audience. In Q1, another very good thing happened. If you look at the amount we spent on user acquisition in Q1, it's 25% to the gross revenue in the quarter, and that's the same as in Q4. If you compare the earnings margin in Q4, which was about 4%, to earnings margin in Q1, which is about 9%, you can see that spending the same percentage of our top-line revenue on user acquisition.
While doing that, we were able to expand our margins almost twofold quarter-to-quarter. That's quite remarkable, and again, shows the leverage in the business model that we have. Now on to slide number two, the financial summary. I think we covered the growth of the top line and the drivers behind it. Another interesting thing is that 22% of our revenue in Q1 came from Asia. That compared to only 10% last year in the same period. Asia, once again, was fueling our growth during the quarter. Also, a high percentage of revenue came from smaller screen devices. That means phones or tablets also, as they're called, so not tablets. The growth of the user acquisition spending year-over-year went up by over 200% and 27% quarter-over-quarter, pretty much in line with the top line growth quarter-to-quarter.
We had some increase in R&D costs. The reason to that is that we amortize more. We capitalized a bit more as well, but I think we had larger amortization, and in the end, during the quarter, capitalization and amortization once again almost canceled out. There's not a lot of effect on earnings from that. The cash flow was negative in the quarter. The reason for that was that we only received two payments from one of the big application stores compared to the usual three. That basically postpones the moment when we receive the money, in this case, just by a few days, which pushed it out of the quarter. The outstanding amount is reflected on the accounts receivable on the balance sheet, you can see that. Let's move on to the next slide.
The next UA platform in Q1. You may have seen this illustration from our presentation for the previous quarter. It's basically the same illustration that shows that when we increase the amount of user acquisition spend, we expect the revenue to grow, and we expect the percentage of user acquisition spend to revenue to go down as that happens. In this case, we always have the opportunity to kind of fix the absolute amount of user acquisition expenses and just keep it there and allow the revenue to grow to the next platform and allow it to stay there and to show the maximum possible margins that we can achieve at this level. In Q1, we actually decided to go farther, and we decided to, once again, increase the amount of spending on user acquisition. We did this step-up thing once again.
That's the reason why the percentage of UA to revenue in Q1 is basically the same as in Q4. It reflects quite aggressive investment in user acquisition. That makes it even more remarkable, again, that the margin went up almost twofold from Q4 to Q1. It means that we want to continue driving growth of our revenue as long as we see the opportunity. As I mentioned in the report, we have seen the growth on the new level of revenue that we have achieved in Q1 continue into the first month of Q2. That's the only month that we can now see in the rearview mirror. Everything else lays ahead, and we'll see what happens. We are really focused on trying to maintain the pace of growth that we have.
If you look in the last 12 months, you can see that our UA spending was between 15% and 30% of our gross revenue. That gives you the range that you can think of where basically we're going to be in the next quarter. Our current level of 25% pretty much reflects that we're doing it quite aggressively. Maybe not as aggressively as we did before sometimes, but on a higher level of revenue, that means quite substantial amounts that actually go into marketing. All right. Let's move on to the next slide. Revenue. Once again, good growth in revenue. Quite impressive chart here. If you look at free-to-play revenue only and disregard the unlockable game sales, the year-on-year growth is actually 151%, even more impressive.
We expect unlockable games to continue to shrink and the dynamic of the top line to reflect the pace of growth that we have in free-to-play games more and more in the next quarters. Let's move on to the next slide, operational costs. You can see, the biggest increase there comes from the marketing spend, which is driven by user acquisition spend. We also had some increase in the research and development costs driven by higher amortization as many games exited the soft launch window compared to last year to the same period, 2016. The same time, we are actually capitalizing a smaller amount of money compared to last year, which shows that we keep our development capacity and our development effort at about the same level, which I think is great news.
It shows that we can grow our top line using our marketing spend and using all our marketing efforts and the mechanisms of keeping users and acquiring new users in our games without increasing the capitalizable development costs. All right. Let's move on to the slide titled EBIT margin. You can see we went up quite substantially compared to Q4. This is not the highest we have shown. The highest we have shown was in Q3 2016, but that quarter had a considerably smaller amount of money spent in marketing. This is actually very good that we were able to deliver this margin that we did, 9%, in Q1 this year. Although the margin was quite similar one year ago, 8.8%, you have to take into account that last year, quarter-to-quarter growth in Q1 was really small. The company wasn't really growing much.
Investment in user acquisition was rather low, and that was the reason why we were able to show almost 9% profit margin. The more impressive is the fact that this year we are showing the same margin while also spending 25% of our revenue back into user acquisition and showing 27% growth of revenue quarter-to-quarter compared to Q4 2016. Next slide, net capitalization. Net capitalization went up a little bit compared to Q4, so it literally canceled out in Q4, almost literally. There's a little bit of contribution to the earnings from capitalization this quarter. Again, compared to the new level of earnings, this is actually a rather small amount. Compared to historic numbers that we had in 2015, 2016, this was a small amount. I mentioned before, we expect this balance to continue into the future.
It will probably go up and down depending on the situation with our development and investment in development of new and existing games from quarter-to-quarter. Overall, no big changes here that we are expecting. We look at the balance sheet and capitalized costs on the balance sheet, the amount went up somewhat compared to last year. Free-to-play games now represent 99% of total value. We can see that the capitalized amounts for unlockable games that are released is almost zero. There's a little bit associated with the unlockable games that are not released yet. Then, also, most of the value is associated with the free-to-play games that have already been released. Then the new games and the games that are not released yet, the amount associated with them is substantially smaller compared to last year. This reflects two things.
First of all, is that we're definitely aiming to not release as many games as we did before. We're probably going to release just a few games a year, but really focus on their quality and success in the market. The other thing is that we are trying to stick to what works and try to avoid long-term, very expensive games, some of these projects that we had in the past. We want to do it quicker, and kind of focus on things that we know work well and become more effective with that. I think our balance sheet dynamic sort of reflects that. Let's move to the next slide, cash flow. Cash flow from operating activities, SEK 11.6 million.
Once again, there is a big input from changes in working capital, that amount that was outstanding at the end of the quarter has led to the negative cash flow. If we receive that amount on time, accounts receivable would be lower, we would have more cash on the account, cash flow would be nicely positive. We are not concerned at all with the negative cash flow in the quarter. That's just the way we are paid. Sometimes we're missing one monthly payment, that changes the situation. We're going to catch up in other quarters, this will come back with some surplus in the following quarters. Nothing really interesting here other than that everything is good. That's it. Next slide is basically Q&A. Thank you for listening, if you have any questions, we're here to answer.
If you have a question for the speakers, please press zero one on your telephone keypad. As a reminder, if you want to ask a question, you will have to press zero one on your telephone keypad now. There appear to be no questions on the phone, I will hand back to the speaker.
All right. Thank you everyone for listening and for participating. With that, we pronounce it the end of our earnings call for the first quarter. Thank you. Goodbye.