Hello. Welcome to the Q3 report for MAG Interactive. We're going to talk about March, April, and May today. Here to present is myself, Daniel Hasselberg, CEO of MAG.
Me, Magnus, CFO.
As usual, before we go into the highlights of the report, reminding you that we have a Q&A session at the end, and also we'll take questions on Twitter during the day, and you're going to get some information about how to reach us on Twitter. A couple of words about MAG before we dive into things. We are a mobile games developer, started here in Stockholm 10 years ago. Now we have one studio here in Stockholm with about 65 people, and we are about 20 people in Brighton in the U.K. as well. Over these 10 years, we have reached more than 250 million downloads, and our focus is basically North America and Western Europe, or that's where we've seen the biggest traction for our games to date.
We are a free-to-play developer, which means that we are working with this kind of crossroads of creativity and data. Building really fun, engaging games, and then we use data to optimize product experiences, and also, of course, in the performance marketing part of the business, it's really important to be on top of all things data-related. We have some really good analysts and a lot of good tools we developed over the years to be able to do that. Since we started, we have launched a number of games. I'd say on average, maybe one game a year. It ends up being a really strong live portfolio of games. We have more than 2 million daily active players. It's a very steady number for us. We have more than 1 million hours of gameplay being played every day, something we're very proud of.
It's not only high volumes of downloads and players, it's also very high engagement. The portfolio is kind of split between single-player and multiplayer games, but the focus for the last two years has been on doubling down on multiplayer, both existing ones and building new multiplayer games. Today we also want to talk a bit about how we view our product portfolio in terms of where are the different products in their life cycle. We split this up into kind of four parts: new games, growth games, evergreens, and catalog. New games, obviously, that's both all the guys that worked on the games you haven't seen yet, but then the games that are out there also generating revenue, so that we have New QuizDuel, which is almost in the growth part now.
We have made a bit of a dotted arrow here from old QuizDuel to New QuizDuel, and that is to show audience moving from one game to the other. That kind of cross-promotion of players will push New QuizDuel up into the growth part of this chart. In the growth chart, we have games that have significant revenue for the company and also significant growth potential. That's basically how we define that area. Then, of course, we have the evergreens and the catalog games.
Exactly. On the right-hand side, where the evergreens and catalog are, we have the mature games that's been around for quite a few years. On the upper half, the evergreens is where we have the more significant revenue per game, and we find QuizDuel, Ruzzle, and WordBrain. These are games that have really good volume asset and good margins. We could make good profit out of each game there. Usually also for the multiplayer part of this, we have a situation where the audience is actually the content. They're relatively easy to maintain and run, but we continue to invest in these games, and we continue to launch updates. For example, Ruzzle recently had major upgrades to itself.
WordBrain is also in that part of the portfolio where we have higher revenues, slightly more content-heavy since we have to create content for users on an ongoing basis, a single-player and level-based game.
I think the amazing part with that part of the portfolio is there is really hard to see an end to this. We've seen games being out for seven, eight years, and there's no sign of the games going away. I don't think anyone in the free-to-play space knows the lifetime of a game yet.
Exactly.
It might be 15 years, might be longer. Who knows? At least more than eight years.
Exactly
for sure.
In the lower part of this chart, we have the catalog games, which is lower revenue, but otherwise the same logic. They've been around for a long time, and they will stick with us for many more years and continue to deliver contribution to the company.
Yeah. I think that's a pretty good overview. I'm very happy to see that we have games in all parts of this chart. New up-and-comers, the growth games, and then the very stable games with high profit margins. Moving on to some of the key events during this period. Again, this is March, April, and May. Wordzee's growth is, of course, a highlight for us. This is a game we talked about last report as well that is now out live globally, and we're learning more about the game in terms of game KPIs. You see how the marketing works, and Q3 has really been a growth quarter for Wordscapes. On the back of these very high ARPDAUs and strong KPIs, we've been able to accelerate user acquisition. That's one of the biggest games now already in the portfolio in terms of revenue.
New QuizDuel is out live now since early May. We've been gradually rolling out in more and more markets and then globally live in May. That's a big deal for us, of course. The biggest game we have in terms of active players is QuizDuel, optimizing that player base is a big deal for us. Then we have a continued pandemic effect. We describe it that way because in the Q2 report, we actually talked a bit about March due to the circumstances. As we mentioned back then, we had a huge influx of new players when markets went into lockdown, like Italy, France, Germany. We saw these install spikes in end of March. That, of course, turns into daily actives and monthly active users. That brought us up to more than 2.5 million daily actives.
That was end of March, and I think we saw that peak in sometime early April.
Yeah.
Installs, those organic boosts of installs normalized during this quarter, and then daily actives settling down a bit because that's how retention curves look.
A very good boost to our business for sure. When speaking about the pandemic, of course, it has been good for the business of MAG, but it's of course a huge negative deal for the world in general and for MAG as well. We have offices here in Stockholm, in Sweden, and we have in the U.K., which are two of the worst hit countries in Europe in terms of COVID-19. This remains a top priority for us to make sure we act in a good way, and we remain remote first, which means that majority of people work from their homes.
Yeah. That's what's important to make sure that that works, but it's also been number 1 for us to take care of ourselves, our employees, and the company, and also look outside of the company to see what we can do to contribute. Internally, it's been about launching surveys and make sure people have what they need to work from home and everything. Externally, we really try to figure out how we can affect the world or help the world in society from our position that we have.
Yeah. Part of that has been being part of a industry-wide initiative called #PlayApartTogether. That's been an initiative to basically reach out to the players and show that you care and try to help them in a stressful situation. It's been great to see each of the teams at MAG have really taken part in this and done different kind of events in their games. Both Ruzzle, Word Domination, WordBrain, and Wordzee have all done WordBrain COVID-19-related events and talk to the community and try to show that we're here for them. Interacting with your player community is always important to build better games and engage the community, of course, but it felt extra important during this time. Yes, let's talk a bit about the outcome business-wise from this quarter.
Exactly. We'll have a quick dive down into the numbers. Starting out, of course, as always, with net sales, which is also, I guess, a highlight of the report with 34% up year-over-year. Going from SEK 48 to SEK 65. A lot of the growth here comes from QuizDuel and Wordzee.
We also have an effect from the pandemic situation as we mentioned. It's nice to note that we mentioned before that we have two main areas to grow the business. One is improving the KPIs for the existing user base, which is relatively stable, and of course, launching new games. Here we have both contributing.
Yeah.
We'll come back to that also in the ARPDAU discussion in a second. Looking at the marketing or the user acquisition, we're quite happy to note that we're back to levels where we would look to be for a while, SEK 26 million spent in the quarter. That's up from SEK 16 the year before, but it's also up from SEK 14 in Q2. Sequentially, it's quite a dramatic change. A lot of that connected to Wordzee.
Yeah
our newest game in the portfolio. We take that with us into the contribution discussion where we file a historically strong contribution of SEK 31 million. That's up from SEK 28 million in the last same quarter last year. Normally, in a short period of time, we would push down our profitability metrics.
Yeah.
We would hurt the contribution as well as EBITDA.
With the organic growth we have in QuizDuel in the quarter, we're counteracting that and balancing out. We're landing contribution on a strong level.
I think it's a good thing you point out here that these two growth pillars and being able to expand on user acquisition is a really good sign for us as a business that we have games we can support with this much user acquisition.
Yeah. We'll have a quick look also on our other KPIs, MAU, DAU, and ARPDAU. Starting out with MAU is really our audience. Those are the players that come in on a monthly basis, that's pretty much the users. We're going from 7.3 to 8.2 million year-over-year. We're adding almost 1 million users compared to last year. We're also adding 1.5 million between Q2 and Q3, that shows the influx of users during the quarter compared to what we had in the previous quarter.
A lot connected to the pandemic, also, of course, to growing game. If you look at DAU, the effect is slightly smaller. We go from 2.2 million last year to 2.4 million. We already mentioned that we had a peak during the pandemic, the lockdowns of countries. The peak was beginning of April. Since then, a bit of fade out of those audiences as expected. The average is 2.4 million for the quarter. Look at ARPDAU. As we've also seen before, we have a sort of a cross-portfolio improvement of ARPDAU in all the multiplayer games, both the old ones and of course, also adding a new game with Wordzee with stronger than average ARPDAU, or significantly stronger than average ARPDAU. Not the huge user base yet, at least we're contributing to add to the increasing ARPDAU.
Yeah
cross-portfolio.
For sure. Coming back to this transitioning to focus on multiplayer. If you follow the company for a while, you've seen this picture where we separate multiplayer and single-player revenue. The pink parts here are the multiplayer revenues that have shown a really nice growth over the last seven quarters. Here we also put in ARPDAU in the same picture to show the correlation here between revenue growth and ARPDAU improvements. We think we still have a lot to do on the ARPDAU part of things. It's a very loyal and stable player base, being able to optimize ARPDAU there is a great way to grow the business.
Of course, you can see between Q2 and Q3 here is a really sharp growth, which is a combination of pandemic boost of players, but also, as we mentioned, New QuizDuel and Wordzee both growing in a really great way. It's clear that this strategic shift has paid off for us, and we're very happy to continue on this path, focus on multiplayer. Worth noting here as well is the light blue part with the single-player revenues. It's, as you can see, very stable over the last quarters here. It's something we can rely on, which is a great contribution generator. A few words about what we're up to right now. Wordzee, really in scale-up mode, very strong ARPDAU, which makes it possible for us to support the game with more user acquisition.
During this quarter, we also passed 1 million downloads, which is our receipt of that we made a game that works well. We're very proud of our product development process that keeps on getting games out that work well, and we get to these million downloads in a reasonable time after launching a game. Same thing with New QuizDuel. Global launch in May, and it's also past 1 million downloads during this quarter. Of course, in Word Domination and Ruzzle, we also have active teams developing features, as you mentioned. Ruzzle came out with a new event engine, so there's now continuously running events in the game, and we see how that improve ARPDAU and conversion to payer. I think it's a great example of this reusing good ideas from games across the game because they have a similar audience.
We have the multiplayer approach in all of the games. It's really strength for us as a company to be able to see what worked in Word Domination, do that in Wordzee, and now in Ruzzle and so on. Also stuff coming to New QuizDuel that we also see over-perform compared to QuizDuel. Then, of course, continuously, we live operate WordBrain and the catalog games, and it's a small team of three people that's running these games that are contributing SEK 7 million-8 million every quarter in revenues. It's a very highly profitable and great part of our business. Just summing up what we're focused on right now. One is, of course, the continuous scale-up of Wordzee.
We're both recruiting more people to that team to build an even stronger group, and we have a very exciting roadmap ahead to execute on. I think there's a lot of exciting stuff coming for Wordzee in the next 12 months. We're going to continue to invest in user acquisition behind Wordzee and Word Domination, of course, and continue to invest in infrastructure and new games. What we see over these years, as I talked about in the beginning of this presentation as well, the portfolio is an incredible value for the company. To keep on getting new games out that work well, that can reliably build this pile of users and revenues is a very solid strategy that we rely on. We're going to continue to invest in new game development.
Of course, the cross-promotion activity to new Quiz is a bit of an outlier in terms of growth strategy. We have the optimizing on existing user base, and then we have the drive new games with user acquisition. This is another part which is moving a huge audience from one older game into a new game with better KPIs. That's a very exciting journey that we're on right now. As of early May, we're globally live, which means that we can cross-promote all of the players in classic QuizDuel. That's an exciting part of the business development during Q4. With that, I think we're ready to go into the Q&A session, see if there's any questions from you guys who are watching this stream. Oh, my gosh. Just pulling up the question window here.
Community-adjusted EBITDA seems to be above expectations. Why is the stock tanking? The stock price, I think it's very hard to comment on and, of course, to understand why. We're very happy with the report. That one is easy to comment from me. It's the highest revenue we've ever published as a public company. What we're on right now is this transition journey to move more and more players into New QuizDuel, I think it's going to show, in the end, how much better the game is when we have all the guys on board. Something I didn't mention is that we also introduced a subscription element to New QuizDuel.
Same thing there, learning from Word Domination, and now New QuizDuel also has subscriptions. That's also going to be an exciting part to see grow. I think it fits well with this kind of very loyal user base. How has the advertising market changed for MAG during COVID-19? Maybe that's the one for you.
Exactly. That's something we kept a really close eye on, and I think we talked about it in the last presentation as well, three months ago. We weren't sure when going into the quarter what was going to be the effect on the advertising market, and now, of course, we know much more. I guess the main story is we've seen some movements from branding advertising into performance marketing advertising in Germany, for example. I think we've been able to counteract all of that. We've seen no or very little effect on the sort of every important income per DAU that we have across portfolio. Working with mediation partners, we can always navigate between where the money is in the market right now. I think for us, we've seen no effect in that sense, but we can see some movements in the market.
Yeah, I think we talked about that before. Some of the obvious moves at least that kind of certain types of brand advertisers are basically out of the market completely.
It doesn't make sense to advertise maybe for travel and so on at the moment. It's coming back for sure. Comment on depreciations of the new games QD, Wordzee, when it was activated, for how long per game?
Yes, a quick backup. We activate the games from sort of soft launch decisions. When we build the soft launch version of the game, we start to activate it into the balance sheets, and we depreciate over three years, so 36 months. Both games were activated starting end of last year. That's approximately the range we have.
I think that is maybe compared to some others, we are pretty conservative in terms of activations. We, of course, have a lot of development of games that are not in soft launch, and that is not activated. When we put it into the balance sheet, we are pretty confident that this is something that actually has a lot of value for the company.
Certainly. Good point.
Confident about that. Two quarters from now, what's your best guess on revenue split between in-app versus ads? Yeah, that's an interesting one. When you look at a game like Wordzee, for example, that has a very high ARPDAU, it also has a bigger % of in-app revenues, especially in some markets. If you look at the U.S. market, which is always stronger on in-app, they have a higher conversion to payer normally, and also more high spenders in the game. It depends a bit on how the mix will transition. We also have a big movement of players from old to new QuizDuels, depending on how well they will convert into payers, that could also potentially change the mix.
My guess would be that we will tilt slightly more to in-apps versus ads over time. It depends. We have a really good ad monetization team that is also doing their best to optimize the ad side of things. It's not like we don't like the ad revenues, but it's when you have games like Wordzee, for example, that monetizes really well in in-app revenues, that will probably start tilting it a bit in that direction.
The ad market is also kind of in general, maybe not the last few months, but in general, it's on an improving path as well in terms of rewarded video and how well they monetize.
We'll see. How come you have it so hard to actually make money? Even when corona effects, you have trouble making money. What are your thoughts about that? That's of course, the definition about making money is we're working on contribution as our kind of means to go from revenues to profitability. If we look at the organization side of things, we are investing in making new games. As I mentioned, we're not activating all of that. It shows up as kind of slightly less profitable than you might do if you have another way of presenting it. Of course, the longer-term goal for any company and for us is to go to a strong EBIT margin and strong positive cash flows. We are in a kind of growth state as a company.
That's why we're recruiting more people, doubling down on Wordzee. We also see our kind of product development process as producing good results, we should continue to invest in building new games, which will kind of build the growth of the company for many years to come. I think that's the important part is we have a really strong kind of underlying profit margin. The games in themselves are profitable, we are continuing to kind of investing in building organization as well to build the pipeline for the future. We're not settling for SEK 65 million in revenues and optimizing profit margins on that revenue base.
Certainly.
We could easily show much more profit if the short-term was the most important for us, but we are building something exciting for the long term. How does subscription affect other revenue streams? How will you continue to develop the subscription model? That's a really interesting one. How we design subscriptions in our games is to not cannibalize on the in-app revenue part. We're not giving away tons of things you could otherwise buy. That's an important part. We've seen this as a true kind of additive on top of the in-apps. What we do offer is an ad-free experience. If you're subscribing, we think that makes sense to be part of a VIP experience. For those users that are subscribers, they don't generate any ad revenues.
That it cannibalizes on ad revenues, but it's a much bigger contribution on the subscription and in-app revenues than they did previously on ads. We feel very confident that it's a net positive.
Of course, like the player patterns we see on subscribers that have super low churn rates and a very stable, loyal player base. Developing subscription models. I think if you look at the Word Domination development over the last year or so. They launched subscriptions in, I think, April last year, and it was mainly ad-free, something else as well. They continued to add on more exciting stuff. I think the last fall, you started to win more things when you took part in events, and you can really see clearly that if I was a VIP, the benefits would be even higher. It's early access to some kind of content as well. I think we're going to see more on that topic in the game.
Making the experience become deeper and richer if you are a VIP and continue to remind people through running these kind of frequent events. I think Word Domination shows how other games might develop. Any new game second half of 2020? We're not announcing games until they are going into soft launch. What we can say is that, of course, we have games in development, but we will have to wait until we announce things, so I can't comment on that. Sounded quite optimistic regarding possibilities of M&A. What's your wish list in terms of size, geography, and genres? I think this refers to parts of the report, the CEO award we talked about. We have cash in the bank, so we can both accelerate user acquisition and look at M&A opportunities. I think it's a pretty exciting market right now from a buyer perspective.
It's not as obvious to raise money if you're a smaller game studio, but we could provide something really interesting in terms of context and finances. We are looking actively at potential M&A opportunities. I think it's a really exciting time to be in a strong cash position, that's for sure. That's something we continue to look at. In terms of size and geography, we're pretty open to geography. Of course, it's easier if you're slightly similar time zone. We definitely work with North South America as well. Size-wise, we're trying to find things that we define as working. A good game that's proven or a studio that already shows that it can generate revenues. It depends on where they are in their life cycle, if that's more like a SEK 10 million acquisition or SEK 100 million acquisition or even bigger.
We will decide what to do depending on what the company looks like, and then we won't limit ourselves to the cash in the bank if we find something that's really amazing. One of our competitors, Zynga, is investing in different techs like word games, instant messenger, Snapchat, Amazon, Alexa. Are we also thinking of exploring these new opportunities? We've been doing some of that historically. QuizDuel, you can play that on Alexa already. In Germany or in the U.S., you can play QuizDuel over voice, over Alexa. We were actually part, like a beta launch partner with Facebook for the Instant Games. Wordalot, one of our catalog games, we did a kind of Instant Game version of that game and launched as an exclusive set of 10 or 15 studios globally, were part of that launch back in 2017 or something.
At least back then, it proved to be a pretty poor place in terms of getting good retention. Maybe our games weren't a good fit, or maybe it was something we should have done differently, but we didn't get a feel that we should double down on instant games back then, at least. We're always looking to trends where things are moving. Given the fact that we are working with a very casual gamer audience, we want big volumes of players for our games. We can be slightly later to the party sometimes and make sure this is actually a valid platform before we start dedicating resource towards that. I think we have a lot of space to grow in the kind of just App Store, Google Play. We do have games on Amazon as well, but it's a tiny part of the business.
Snap, I don't think is super relevant for our kind of games. Our audience skews older than Snap. Will we see the same negative effects as last year on ad revenues this summer? I mentioned that in the report as well. In general, seasonality is negative for us between mid-June, mid-August, and often also in January. Basically when advertisers pull back on their ad spend, and that means that in general, all things equal, we should perform slightly worse on the ad revenue side. I say on activity side during summertime, if it turns out to be a really great summer in our biggest markets like U.S., Germany, and France, people are going to play slightly less. The good thing is they also come back every end of August and start playing again.
I'd say Q4 is our weakest seasonality-wise, but on a long-term trend, it doesn't hurt as people come back again. I think we've been fairly good the last few years to counter that as much as possible. For sure, seasonality-wise, Q4 is the weakest for us. What's the % split in terms of numbers of players playing QuizDuel and New QuizDuel right now? I can see why you ask that question, but we don't split the DAUs between games. If it's not in the report, I can't really comment on that right now. What I can say, which I think is the important thing, is that our target is to push the audience from old QuizDuel to New QuizDuel as quickly as we can. I hope when we go out of 2020 that we have everyone on New QuizDuels.
It's going to be pretty active cross-promotion plan and really try to make sure all the players come along for the improved experience on New QuizDuel. I can't give you the real-time split. Maybe worth commenting as well that some people play both games. That's an interesting player pattern, but we'll see. It sounds like year 2021 will be MAG's best year ever. Do you agree? What we can see is the trend of the last seven quarters from that we went into focusing on PVP that's been kind of underlying very positive thing for the company.
I think it's hard to do predictions into each and every quarter going forward and so on. We are very bullish on the future. That's why we are hiring more people into building our new games and also doubling down on Wordzee to create future growth. I think you live and then you see. There's a lot of moving parts in the mobile games business as well in terms of how much can you invest in user acquisition any given month or quarter. That's also up to competition and all kinds of circumstances. I think we're well equipped at least for continuing on an interesting journey. We'll see if next year becomes our best year ever, that would be awesome. Looks promising. How big do you think Wordzee can be in the U.S.?
What we are looking at when we make new games is, one, of course, to make a game that's better than all other games we've made so far. That's kind of the biggest reason to launch a new game and spend more energy behind that. In terms of looking at the U.S. potential for a strong word game, Wordzee is really big. It's up to how the landscape shifts and how well we can execute on this great game. I think the potential is very high for Wordzee, but it's hard to quantify. The word games market in the U.S. is huge. There are reports on that which will be more accurate than me.
It's in the $hundreds of millions at least. It's a big market. To what extent did you recognize higher private equity valuations for mobile gaming companies after COVID compared to pre-COVID? Private equity.
If it refers to valuation of targets.
I'm not sure. If you take places, the M&A effort is something that's ongoing.
This has been a fairly short period from start of the COVID-19 pandemic and onwards. We're looking at targets on a continuous basis.
We haven't experienced a strong difference in valuations in this period. What we can see, some metrics are moving, of course.
It's been a moving target in that sense.
Yeah
during the period. It's been a fairly short period, and it hasn't affected us specifically, I'd say.
I think if you look at kind of a broader industry perspective, of course, there's been a lot of M&A activity from big players like Zynga and Scopely and so on. There is a lot of consolidation going on in the industry. I think that could be a good place to look for benchmarks and so on for M&A on that scale.
Are you looking for third-party games to publish? We're not ruling that out. I think what we are looking for is great games, and I say the most likely path for us is acquisition. We're looking for great games that we can buy and add to our portfolio. Maybe sometimes that could start as a publishing relationship and end up in a different place. The starting point is, can we find really good games that we think fit our audience and our knowledge and experience? I think we are pretty good at judging if a game has high potential, if it is in our area of expertise. We have a lot of benchmarks to look at.
If we find a great game, we're going to try and find a way to collaborate. I'd say acquisitions is the kind of main path. I'm not seeing more questions on my screen, I think.
I think we're done.
If you didn't have time to write your question right now during the stream, go to Twitter and write questions there, and I will make sure they get answered during the day. Of course, you can always reach out to us if you have any other questions. Yeah. With that, I think we'll wrap up. Thank you so much for watching.