Q2 19/20

Apr 1, 2020

Quarterly report

Welcome to Mag's Q2 report for 2020. I'm Daniel Hasenberg, CEO, here to present today together with Magnus. Hi, Magnus, CFO. So as usual, we're going to talk about some highlights from the report and a bit more unusual, we're actually going to comment a bit on the period after the report as well as we are in pretty special times at the moment. So first a couple of words about MAG. We have been building games for about 10 years at $250,000,000 downloads, and we have 2 studios, 1 here in Stockholm and 1 in Brighton. And right now, they are actually empty. This is the first time we're in the office in almost 3 weeks now. So we came in just to record this. So it feels a bit weird, but we are still continuing, of course, to work on our games. And I think we as a company are pretty well set up to be able to do remote work. But yes, we're chugging along as best we can here. And And as of today, we should mention the portfolio of games that we've built over the last 10 years. So as a games company, it's a huge benefit not to only rely on 1 or 2 games. And we actually have a really good portfolio of games with our classic games like Quiz duel and Russell, but also newly released games as Wordsy and the new Quiz duel. And the key events we're going to talk about today is then Quiz duel that we launched in late November, the new Quiz Jewel that's going out in more and more markets and also a few words about the impact we've seen of the coronavirus on both our business, our company and our player community. But first, of course, we should talk about the reporting period, which is December through February. Exactly. We're filing net sales in the second quarter of SEK51 million, which is up from SEK41 1,000,000 or 23 percent year over year. That's mainly attributable to the multiplayer portfolio, which is up 50% and is now bigger than the entire company was a year ago. And that's obviously both growing gains backed by user acquisition and strong monetization in our evergreens as well as in newer gains. We have a flat user acquisition year over year at €14,000,000 roughly, but it's up quarter over quarter, which is based on the WorldC global launch, which is taking some of the user acquisition and bringing it up. That brings us to contribution at SEK32 1,000,000, which is the strongest we have reported as a public company, and that all translates down to SEK35 1,000,000 EBITDA. Moving on to the KPIs, we always talk about in these presentations. We have the DAO and ARPDAO, so audience and our monetization per play and day. Dow is down slightly year over year. That's entirely down to the single player part of the portfolio where the multiplayer part is stable. Yes. I guess the EU increase is kind of expected in the single player parts. The decrease, yes. Decrease, yes. Exactly. And of course, the multiplayer is a mix of some games without user acquisition backing are shrinking a little bit, and we have new games adding players to portfolio. But overall, it's stable. While the ARPDAU is up sharply year over year, and we talked about this in the last few quarters with a strong amortization throughout the multi player portfolio, and we reported also some details in the last half year about this. So that's making the ARPA becoming 0.029 dollars in the second quarter. I mean, it's been a really a focus area for the company for the last year. So we identified Arta as one of the kind of key KPIs we need to focus on. It's great to see the result of that in the numbers. So as you often talk about, like the growth pillars of the company, one is actually to optimize on the existing user base and that's what we're seeing here with the ARPDAU increase. So it's really good. And of course, the biggest games with the biggest chunk of DAUs are where you need to see improvements of ARPDAU for it to really hit all the way to the average. So it's great to see the average is up so much. And part of this initiative to improve Arctaw in the big parts of the user base is new Quiz duel. So the classic Quiz duel is our biggest game in terms of daily active users and we want to take that audience into a game with a stronger art thou. So that's a new quiz duel that has significantly better Arpdal than the classic game. So in the reporting period, we have then started to promote the gaming for Sweden and then Italy and Ireland and the U. S. And as we communicated a few weeks ago, we have now launched the game also in France and most importantly, Germany, which is the biggest region for Quiz Jewel. So it's a really exciting time now to kind of scale that up in the biggest market and we put a lot of investment in the tech in the sense that we are building a backwards compatible game. So in new Quiz duel, you can actually challenge your friends in old Quiz duel and even chat between the players in the 2 different games. And that's a huge benefit now because then we can, in a very controlled fashion, have the games out in parallel in a market like Germany and optimize cross promote players, see how they behave, cross promote even more players. And also, of course, in a multiplayer game, it's key to have a high liquidity of players because if you want to get a new game started, there's needs to be someone else who wants to play at the same time. Now we can tap into this massive active user base of the classic game, so that gets the new game off to a good start. So it's great to see that investment pay off. And during this Q3, which is March, April, May, we expect the game to actually be fully globally live in all markets and increase focus on now cross promoting players into the new Crystal. And what we expect as an effect of that is, of course, the arkta for that franchise will gradually increase as more and more people are in the new product. So an exciting time for Quiz Duo for sure. And WordCe, of course, we launched this game the last few days of Q1. So that means that our Q2, December through February, has been a period of getting the game out in all the markets globally, gathering data, optimizing the product. And we also as a very data driven company, it's also about training the data models and optimizing the LTV predictions and the ROI calculations and so on to be to get more and more comfort into increasing spending in user acquisition and knowing the expected returns. And as we talked about previously, we have a 180 days payback window that we're targeting. So that means that if you pull up the screen again with a graph, you can now follow how the user acquisition would over time increase and then you have revenue that's lagging behind since if you invest $100 month 1, month 6 you have seen all those money back and then you see the profits. So it's a bit of a lag. So when we now kind of increase user acquisition, we also expect a kind of a negative impact on the game contribution metric until that's kind of caught up and then start really ramping up in terms of profits. And on the user acquisition side, there's a lot of moving parts right now with the market changing quite rapidly. So want to talk a little bit about that as well. So what is happening in the world right now? Of course, it's on everyone's minds, I think, globally right now, the coronavirus. And about 3 weeks ago, we decided to go what we call remote first at MAG, which means that kind of the default work location now is your home. A few people live really close to the office. Of course, they can walk and work here if they want to. But we expect people to work from their homes. And that's, of course, the number one focus for us as a company is the well-being and health safety of our staff. But also a lot of people that work here are young and maybe not very exposed, but we need to be a responsible actor in the society as well to not be part of spreading the disease. And one of our studios is in the UK and of course that entire society is basically in lockdown right now. So it's a very special moment in time. And what we're trying to do as a company here is, of course, to keep business as usual as much as you can in terms of keep building fun games and ship new software to the markets, but also make sure people stay in touch with each other in the teams and stay as happy and healthy mentally as well as you can. And I think the teams are doing a great job. It's been actually really inspiring to see how you come up with new ways of working, doing a lot of stuff over video and just trying to keep up a sense of momentum and a high morale in the company. But we're just a few weeks into this situation. So I think we're going to we need to keep on being very innovative when it comes to feeding in the sense of being a team. And of course, as a very international company, we also have people that come from, for example, Italy and Spain and so on, where they really know a lot of people that are in very, very troubled areas at the moment. So the key thing for us now, the focus is to make sure we do everything we can in this situation. Then of course, we have we see effect on our audience and the player behavior as well. And we interpret this as an increased demand for the kind of products we build. These social games that are of course they're fun and engaging, but they're also social. So you can actually stay in touch with your friends. We see increased chatting in the games and we see, as we reported this morning, increased both installs and activity. So we think that what we're doing right now is probably more important than ever in the sense we're actually doing something that could provide a lot of value for people in terms of staying mentally healthy in this situation. So we decided to share the effect of 2 of our key metrics in a way to address the fact that with a lot of reports right now on how the gaming industry, for example, is affected. And we do see, for example, an effect on engagements and downloads in certain markets, especially markets being locked down like Italy and also France and Germany. And that is then downward volumes, but also engagement in terms of playtime, for example. And as a net effect in the last week of March, that was a Dow increase of 25% for us as a company. I thought it was important to sort of narrow that down a little bit given all the buzz there is about this. I mean, it's actually to 500,000 more people playing our games every day. So I think we're doing something good here. We don't know where that's going to end up or what's going to happen, but that's where we were at the end of March. The other thing we keep a very close eye on, of course, is our exposure to the ads market. It's quite heavy. We have our income 60% from ads, and we have our growth strategy to large extent depending on advertising in digital media. So basically, we expect to see movements in the ad side on monetization. We're keeping close eye on it. But part of what we're reporting today is also that we haven't seen it yet. No, exactly stable ARPU is really encouraging so far, but it's a lot of uncertainty going forward, that's for sure. Definitely. We do see signs and we have reports from, for example, Facebook of lower spends in their on their end and their customers, but also lots more eyeballs in general. So we know things are happening in the world. The approach we have in general to growth is probably good here in terms of being such a data driven company. So on the other side is then, of course, the user acquisition where we already see signs that things are happening and moving. And that, of course, is in our direction in a good way. We see new openings and we continue to monitoring that going forward in the next in the rest of the quarter. Yes. So I think in general, a lot of industries now are seeing that there's a lot of movement in marketing budgets and so on and how quickly can you adapt. I think that's going to define you as a company for the next few months. I hope we will be very quick and support all the decisions with data, of course. So just wrapping up this report and the comments on March, the key focus for us now as a company, of course, is to adapt how this situation develops. Nobody can tell what April, May June will look like in the world and in the ads business and in the games business. But that's our key focus to make sure we stay healthy and responsible as company, but also to be very agile and adapt to how the market develops. And of course, the 80 or so people who have at MAG, they're working from home, but they're trying to make this, as we talk about, business as usual and try to keep on building games and launching new features. We're investing in infrastructure and new games and all the stuff you can expect from AG. And of course, it's really exciting now with being able to expand our new games, Wirtsee and new Quiz Steel into the key markets for those games. It's an exciting time, but also very worrying time that I think everyone in society need to help out. I think with that, we're wrapping up the presentation and we'll open up for some Q and A. And as we've done the last couple of reports, we'll also be open for questions on Twitter during the day. And I think there is information about how you can reach us on Twitter. So we're going to pull up some questions here and see. You mentioned in the report that new Quiztiu have significantly higher ARPDA than Crystiel. Can you give a figure what we're on? And can we see more modes in the game like Arena? So we have not reported ARPDA separately on a per games basis. We will see if we start doing that or not. But it's not in the report, we won't comment on it in the Q and A session. But it's a stronger ARPDAU, so we're happy with that. And when it comes to game modes, yes, for sure. I mean, the part of the premise of the new quiz duel is it's built in a new way where we can slot in more events and the players should expect this game to be much more of a modern free to play mobile game where more things are going to go be happening in the game all the time and so on. So it's a really exciting roadmap for that game for the rest of 2020 beyond. So I think it's going to be really fun to be a Twist Dual player. And of course, we are doing that also with engagement and ARPDAU in mind. So I think that game is only going to become better and better every time. Yes, you mentioned in the report that the advertising market is swaying. Can you elaborate on that statement you see in the trends? Maybe this is a question for you, Magnus, advertising. Yes. We touched on it briefly in the presentation as well. But I think on the sort of general, we will see certain sectors having lower spend in general like travel and sector, for example, would have probably moving bodies out of the global business. We also see other companies, maybe like ourselves, increasing spend. And we've also see movements of budgets from outdoor, for example, to digital. So we expect to see we don't see it yet as much, but we expect to see movements in the industry. It's really hard to know exactly where it ends up, but we keep close eye on it. And then on the user acquisition side, we expect to see also same kind of movements and potentially new openings to increase our budgets. Yes. I mean in a really good scenario, you would expect there could be some arbitrage. So actually being able to buy users in lower priced channels, but still being able to monetize at a good level going forward. But all of that is what we're that's the active monitoring part of things like do find opportunities and handle the situation. Yes. It's worth mentioning as well as having a multi channel strategy can be more important than ever. So on the monetization side, having a number of different networks to monetize our audience and to be able to avoid the weaker ones and keep on the stronger ones. And on the other side, to be more on the weaker ones when we have user acquisition, if it is. So try to work with that all the time and especially keep a very close eye on what's going on from here and onwards. Yes. I mean, a fairly big chunk of all if you play our games, you see that a lot of advertising is actually advertising for other mobile games as well. So this is a part of the industry that's going to do fairly well during these troubled months. Maybe that's going to be less effective in terms of ability to spend and so on. We don't know much yet. We know how March ended and that looked very stable, but we'll see. When do you think Wordsy will contribute significantly to growth? So I think we'll start to see that very, very soon. And as we are now kind of scaling up in user acquisition, that response comes pretty quickly in terms of revenues. And then it's when you come all the way down to actually positive contribution that has more of a time lag effect. But on the revenue side, we expect Wartsheet to start contribute now. But contribution side like game contribution, that's more of a time lag. We're satisfied with the progress you see with WordC, should be close to 1,000,000 downloads according to Google Play Android. It's been downloaded over 500,000 times. Mentioned rewards here is the highest ARTA of all your games, they give an exact figure. So I think what we talked about previously is that we don't want to launch new games if they don't have more than $0.10 ARTA in the U. S. Market and the words is speeding that easily. So we the ARPU number, if you look at the overall company, as I mentioned previously, it's a mix of a huge amount of players in different markets. So when we look at kind of how we benchmark our games against each other, for example, we tend to look at the U. S. Market to have kind of apples to apples. And there we see that versus the strongest game we have in the portfolio. So then expectations go up in terms of how much and for how long we should be able to scale that game. And when it comes to kind of download milestones, we usually try and communicate that in some fashion. Of course, downloads is not the most important number of everything, but we'll probably communicate something to the market when we feel that we want to celebrate download milestone, for example. Is Mag a stay at home share? So we've heard this phrase before. So I'd say if you see that some companies are more or less affected or positively or negatively affected by the situation, I think digital entertainment, for example, is probably a much better market than many others. Then again, I don't think there is any winner when the entire world economy is shaking. But I think we're doing something that seems to be valuable to a lot of players, and that's why the kind of engagement and revenues go up right now. So in that sense, I'd say that we are a stock that's probably should perform better in this strange market situation, but we hope it will normalize as quickly as possible anyway. What's the percentage ambition for subscriptions for word domination IAP revenue? Are there any time frame when we can see incrementally in Russell, Quiz Jewel and Virtsea as you mentioned in the report? So I think the time frame for subscriptions going into all the multiplayer games is during 2020. And then we talked about being kind of agile and adapt to how the market is changing right now. I think that's that has an impact on the game teams' roadmaps as well. So we're going to see a lot of focus on social now. For example, we see a need in the player community to talk to each other and stay in touch and so on. So it's an increased focus when you talk to the game teams when it comes to supporting even in the better social features. And then we'll see. I expect subscriptions to come fairly soon in quiz duel, for example. And the question about percentage, I don't know where that's going to end up actually. We saw 20% now on of IAP revenues for Wordimation. And I mean the subscription model is very interesting in terms of low churn rates and the value of those customers are really high. And actually as we're now coming into April, it's more than 12 months since we started subscriptions. So it's a little bit of an extra boost that the Apple tax goes down to 15% instead of 30% for players that have subscribed more than 12 months. So that's going to also continuously help a little bit on the contribution side. Can we expect new game releases this year? So we generally don't comment on that basically because we don't know. So when we go out with test launches, that data will inform us if we should kind of package it up and then move to soft launch with that game. And that soft launch could also be longer or shorter. It was extremely short emergency. I think we were in soft launch for like 30 days. But sometimes it will stay in soft launch for a longer period of time. So if you mean like global launch of a game, it's really hard to know when that's going to happen, even though we know what the pipeline looks like in terms of new game concepts. I'd say that's that will unfortunately for the personnel questions keep being an unknown. So we'll have to wait for when we press release about soft launches. You mentioned that you have games in different development phases. Do you believe in it that's the same question, right? Have will not consider using part of your cash for repurchase of shares since yourself, which is in your presentation, the share is too low to make a major acquisition. So this is actually something we cannot do. Exactly. On First North Premier, we cannot buy our shares back. So otherwise, we would consider it. But we would love to make the cash work better for us in some way. That's for sure. How much did you lose on the yield there? So we divested on that in March, registering a loss of at least less than 1%, which I think we feel okay about given circumstances. We felt that we should have those cash in bank instead of at any risk at all at this point. And hopefully, we can put it to good use from where it is right now. So it's less than 1% would be the answer on that. Yes, exactly. So it's not a good time to invest right now in some instruments, but I'm really happy we were kind of on top of that and quickly active when we felt that this is not we're not in the business of speculating in investments, for example. So that was a good move. Why not include more game modes, VIP subscriptions, IAPs in Q2 from the start? So this is actually a question they can talk about quite a lot in mobile games. So how much should you kind of make the product finished in a sense before you go out in the market? And what we've seen with our games like Russell is on year 9 now, the games keep evolving over time and usually you make better product decisions if you actually have their data. So having a game in the wild and continue to add new features is actually a more clever way than trying to make a feature complete game based on your own thoughts and then post it notes on the whiteboard. So getting out there, actually listening to the players and measuring their behavior is a really good way of doing product development. So I'd say I prefer to get a game out that's good and continuously make it great over time than trying to make great product within your kind of four walls of the office. So expectations are that game as well as other games will continue to be better and better over time as we've seen, for example, World of Nation, which is a much better product now than when it launched. I think we responded to the spilt on the question, right? Yes. Do you see any risk that the ad revenues will drop significantly in the quarter due to corona? Yes, I think we discussed it. We don't give any forecast, and I think we can't either. It's harder than ever. We gave a statement of how it affects so far. That's the actual effect in it last week of March, and we can discuss how we view the future. It's going to be movements in the budgets globally. We don't know how it plays out for us, and we think it's going to be something we look at on the income side, but also on the user acquisition side. So that's where we are right now, and we're moving into the next of the quarter with that. Yes. I think uncertainty is kind of the topic for April May. But I mean, if we do the right things at a really good pace, this could also be opportunities and not only risks, absolutely. Which games did you invest in UA for Q2? So I mean, it's mainly Word of Animation and Wordsea. So we'll in this kind of very quickly changing user acquisition landscape, We might open up from investing in a multitude of games now. We'll see. But when you look at Q2, which is was all of the quarter was in a very normal landscape, we kept on doing what we have been doing. So that's growing word domination and then of course when launching WordC also started supporting that game with user acquisition. And then we'll see over time if even new quiz duel will get substantial user acquisition support or not. But the primary growth driver we expect for new Quiz Jewel will be cross promotion of existing Quiz Jewel. And we have to get ROI in 180 days and have a stable U. S. Spend. With those inputs, one could expect the revenues to be increasing steadily. Since your U. S. Spends for more than 100 days ago, it's not over 100% in ROIC, it's up, actually. Okay. So okay, I should read the entire question. They should be more significant. How good are your ROI models in terms of success rate? So we have very good ROI models. The complex thing to understand when looking at the entire business, we try to discuss that from time to time. It's almost like 2 different businesses. You have one existing user base that you optimize against and then you have user acquisition growth. And you also in the existing business, you have single player games that are kind of on a decline and you have multiplayer games that are stable or growing. And that mix makes it fairly hard to see the UA part, what has that contributed with compared to what's happened with the existing base. Exactly. But safe to say that the one game we have been marketing in the last year is subordination and that we added versus something we talked about a couple of times or every quarter, I guess. And those are growing games. But it's only part of the portfolio. We have a number of games adding to the net sales part. It's we know we realize it's hard to see from outside exactly where that plays out. So we but in general, so we have a very high confidence in the ROI. Yes. And yes, the more say like this, the higher the UA volumes, the bigger the percentage of our business that comes from UA will be and then it's going to be more and more visible, I guess, over time. That is actually working really well. Yes. What's the historical average play time for a quiz tool payer that choose to pay more than 3 months? So that was a very specific question. So I'd say I actually don't know. What we do sometimes is look at how big part like you dive into the player base and then you look at how many of our current daily players are more than X days old. You can do like just peek into the games in that fashion. And that's pretty amazing data you get out from these older games where you can see like a vast majority is more than 2 or 3 years old even, like incredible retention for those cohorts. That's of course because we've distilled more than 100,000,000 downloads down to a few 1000000 players. So they are super fans of the game. And I expect most of those to basically never stop playing. That's the pattern you see. We have people that downloaded Russell the 1st week after launch in March 2012 that are still playing. But when it comes to, for example, user acquisition modeling, we look more at the 1st year or so behavior. So we can see we get payback in 180 days and then start generating profits within the time frame. That's actually reasonable for us as a company. Will you invest in UA for new Quistio during the migration period? So I think we will do that. We are doing some user acquisition right now as well, but at fairly small levels, more to kind of understand market dynamics, see where the CPIs are and also help the product team feed them with data in new markets so they can keep on optimizing their product and so on. The main driver will be cross promotion for sure. We have several million players of Classic Quiz tool and they will be high value as well compared to targeting the average person on the Internet. But I hope we will be able to support that re user acquisition long term as well because Have you seen have you been doing some hiring lately? How large do you aim to grow the team for now? So yes, we have been doing hiring lately. We are primarily investing in the product production side of the organization. So always looking for strong developers and artists and so on. But of course recruitment is more difficult right now in general because it's harder when you can't meet in person and processes tend to drag on a bit. So we might not be able to hire at a pace that we would like. We'll see what happens. We're also trying we're adapting and learning. It's an invitation for us as everyone else. We're trying new ways to do recruitment outside walks instead of inside interviews, for example. So we're trying to work on us if this didn't happen and try to find new ways to do this because strengthening our teams is as important today than it was a month ago. For sure. So we're trying to get around it and continue to expand the roles that we intended to do before COVID-nineteen. It's fairly similar to what you've seen from us previously that maybe the team expands with 5, 10 people net every year or so. Like we how we like to think of it in general is that when we launch a new game, that game will be live more or less forever, which means that somewhere between 4, 5 and up to maybe 8 people will work on that game for a very long period of time. And in order to not for the kind of pipeline on new games not to dry up, you need to recruit a similar amount of people. So I'd say when we launch a new game that's successful, we will kind of recruit to replace that amount of people. So that gives you kind of ballpark. If we launch 2 games, maybe we need to recruit between 10 15 people. If we launch 1 game, it's going to be more between 5% and 10%. I think that's ballpark, gives you a sense. But we're not growing super quickly. Have you seen a decline in the demand price with the impact of demand? Demand. Demand price with it. Okay. I take that as a CPM question. And it's part of why we wanted to also give those 2 KPIs today that we can only talk about what happened so far. I guess that's what the question is about as well. And the stable art DAO is a sign that we haven't seen an effect yet of the demand of our RIS basis. It's something we need to monitor going forward, of course. So far, no. Are you committed to only developing multiplayer games for now? Or are you also exploring single player games? So that's something that's kind of in the definition of what a multiplayer and single player game is. So we want our games to be highly social and we want our games to be more fun when your friends are playing. And that doesn't necessarily mean PVP. It could mean a game where you are highly interactive with your friends in the game or you have a community in the game that's very meaningful to the to the core of the game experience. So maybe social is even more precise as a description than multiplayer, but the game should be more fun with friends. That's kind of the basic idea with our product development. Okay. So if I'm right, we're done with the questions here on Twitch. But just a reminder, if anything else comes up, we're going to continue to answer questions on Twitter during the remainder of the day. So thank you for listening.