Hello. Welcome to MAG's Q2 report for 2020. I'm Daniel Hasselberg, CEO, here to present today together with Magnus.
I'm Magnus, CFO.
As usual, we're going to talk about some highlights from the report, and a bit more unusual, we actually are going to comment a bit on the period after the report as well as we are in pretty special times at the moment. First, a couple of words about MAG. We have been building games for about 10 years, had a quarter of a billion downloads, and we have two studios, one here in Stockholm and one in Brighton. Right now they are actually empty. This is the first time we're in the office in almost three weeks now. We came in just to record this. It feels a bit weird, but we are still continuing, of course, to work on our games. I think we as a company are pretty well set up to be able to do remote work.
Yeah, we're chugging along as best we can here. I thought today we should mention the portfolio of games that we've built over the last 10 years. As a games company, it's a huge benefit not to only rely on one or two games. We actually have a really good portfolio of games with our classic games like QuizDuel and Ruzzle, also newly released games as Wordzee and the new QuizDuel. The key events we're going to talk about today is Wordzee that we launched in late November, the new QuizDuel that's going out in more and more markets, also a few words about the impact we've seen of the coronavirus on both our business, our company, and our player community. First, of course, we should talk about the reporting period, which is December through February.
Exactly. We are filing net sales in the second quarter of SEK 51 million, which is up from SEK 41 or 23% year-over-year. That is mainly attributable to the multiplayer portfolio, which is up 50% and is now bigger than the entire company was a year ago. That is obviously both growing games backed by user acquisition and strong monetization in our evergreens as well as the newer games. We have a flat user acquisition year-over-year at SEK 14 million roughly. It is up quarter-over-quarter, which is based on the Wordzee global launch, which is taking some of the user acquisition and bringing it up.
Yeah.
That brings us to a contribution at SEK 32 million, which is the strongest we have reported as a public company. That all translates down to SEK 35 million EBITDA.
Yeah.
Moving on to the KPIs we always talk about in these presentations. We have the DAU and the ARPDAU, so our audience and our monetization per player and day. The DAU is down slightly year-over-year. That's entirely down to the single-player part of the portfolio where the multi-player part is stable.
Yeah. I guess the DAU increase is kind of expected in the single-player parts.
The decrease.
Yeah, decrease.
Exactly. Of course, the multiplayer is a mix of some games which without user acquisition backing are shrinking a little bit, and we have new games adding players to the portfolio. Overall it's stable. While the ARPDAU is up sharply year-over-year, and we talked about this in the last few quarters with the strong monetization throughout the multiplayer portfolio. We reported also some details in the last half year about this.
That's making the ARPDAU becoming SEK 0.029 in the second quarter.
It's been really a focus area for the company for the last year. We identified ARPDAU as one of the key KPIs we need to focus on. It's great to see the result of that in the numbers. As you often talk about, 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. It's really good. 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. It's great to see the average is up so much. Part of this initiative to improve ARPDAU in the big parts of the user base is new QuizDuel.
The classic QuizDuel is our biggest game in terms of daily active users, and we want to take that audience into a game with a stronger ARPDAU. That's in new QuizDuel that has significantly better ARPDAU than the classic game. In the reporting period, we have then started to promote the game for Sweden and then Italy and Ireland and the U.S. 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 QuizDuel. It's a really exciting time now to scale that up in the biggest market. We put a lot of investment in the tech in the sense that we are building a backwards-compatible game.
In new QuizDuel, you can actually challenge your friends in old QuizDuel and even chat between the players in the two different games. 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. 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 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.
It's great to see that investment pay off, and during Q3, which is March, April, May, we expect the game to actually be fully globally live in all markets and increase the focus on now cross-promoting players into the new QuizDuel. What we expect as an effect of that is, of course, the ARPDAU for that franchise will gradually increase as more and more people are in the new product. Yes. An exciting time for QuizDuel for sure. Wordzee, of course, we launched this game the last few days of Q1.
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 is also about training the data models and optimizing the LTV predictions and the ROI calculations and so on to get more and more comfort into increasing spending and user acquisition and knowing the expected returns. As we talked about previously, we have a 180-day payback window that we are targeting. That means that if you pull up the screen again with the graph, you can now follow how the user acquisition would over time increase, and then you have revenue that is lagging behind since if you invest SEK 100 month one, month six, you have seen all that money back and then you see the profit.
It's a bit of a lag. When we now increase user acquisition, we also expect a negative impact on the game contribution metric until that's caught up and then start really ramping up in terms of profits. Yes. On the user acquisition side, there's a lot of moving parts right now with the market changing quite rapidly. We want to talk a little bit about that as well. What is happening in the world right now? Of course, it's on everyone's minds, I think globally right now, the coronavirus. About three weeks ago, we decided to go what we call remote first at MAG, which means that 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.
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. 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. One of our studios is in the U.K., and of course, that entire society is basically in lockdown right now. It's a very special moment in time.
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 market, 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. 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. We're just a few weeks into this situation, so I think we need to keep on being very innovative when it comes to feeling the sense of being a team. Mm-hmm.
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 troubled areas at the moment. The key thing for us now, the focus is to make sure we do everything we can in this situation. Of course, we see effect on our audience and the player behavior as well. We interpret this as an increased demand for the kind of products we build. These social games that of course are fun and engaging, but they're also social. You can actually stay in touch with your friends, see increased chatting in the games. We see, as we reported this morning, increased both installs and activity.
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.
We decided to share the effect of two 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. We do see, for example, an effect on the engagement downloads in certain markets, especially in markets being locked down, like Italy and also France and Germany. That is then download volumes, but also engagement in terms of play time, for example. As a net effect in the last week of March, that was a DAU increase of 25% for us as a company.
It was important to sort of narrow that down a little bit given all the buzz there is about this.
It's actually 500,000 more people playing our games every day. I think we're doing something good here.
Yeah. 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 a large extent, depending on advertising in digital media. Basically, we expect to see movements in the ads side on monetization. We're keeping a close eye on it, part of what we're reporting today is also that we haven't seen it yet.
No, exactly. Stable ARPDAU is really encouraging so far.
Yeah
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 on their end and on their customers, but also lots more eyeballs in general. We know things are happening in the world.
The approach we have in general to growth is probably good here.
Yeah
in terms of being such a data-driven company.
Definitely. On the other side is then, of course, the user acquisition.
Yeah
where we already see signs that things are happening and moving, and that, of course, is then in our direction in a good way.
We see new openings, we continue to monitoring that going forward in the rest of the quarter.
Yeah. 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, and I hope we will be very quick and support all the decisions with data, of course.
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, and June will look like in the world and in the ads business and in the games business. That's our key focus, to make sure we stay healthy and responsible as a company, but also to be very agile and adapt to how the market develops. Of course, the 80 or so people we have at MAG, they are 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 are investing in infrastructure and new games and all the stuff you can expect from MAG.
Of course, it's really exciting now with being able to expand our new games, Wordzee and New QuizDuel into the key markets for those games.
It's an exciting time, but also a very worrying time that I think everyone in society needs to help out. I think with that, we're wrapping up the presentation, and we'll open up for some Q&A. 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. We're going to pull up some questions here and see. It's pretty tiny.
You mentioned in the report that New QuizDuel have significantly higher ARPDAU than QuizDuel. Can you give a figure what we're on? Can we see more modes in the game like Arena?
We have not reported ARPDAU separately on a per-games basis. We'll see if we start doing that or not, but if it's not in the report, we won't comment on it in the Q&A session. It's a stronger ARPDAU, we're happy with that. When it comes to game modes, yes, for sure. Part of the premise of the new QuizDuel 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 be happening in the game all the time and so on. It's a really exciting roadmap for that game for the rest of 2020 and beyond. I think it's going to be really fun to be a QuizDuel player.
Of course, we are doing that also with engagement and ARPDAU in mind. I think that game is only going to become better and better over 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, at advertising.
Yeah. I think on the general, we will see certain sectors having lower spend in general, like travel and sector, for example, will have probably moving budgets out of the global business. We also see other companies, maybe like ourselves, increasing spend, we've also see movements of budgets from outdoor, for example, to digital. 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. On the user acquisition side, we expect to see also same kind of movements and potentially new openings to increase our budgets.
Yeah. In a really good scenario, you would expect there could be some arbitrage of actually being able to buy users in lower-priced channels but still being able to monetize at a good level going forward.
Exactly.
All of that is That's the active monitoring part of things.
Find opportunities and handle the situation.
It's worth mentioning as well as having a multi-channel strategy can be more important than ever. 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. On the other side, to be more on the weaker ones when we have user acquisition activities.
Yeah.
Try to work with that all the time and especially keep a very close eye on what's going on from here and onwards.
If you play our games, you see that a lot of advertising is actually advertising for other mobile games as well.
This is a part of the industry that's going to do fairly well during these troubled months.
Yes.
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. That looked very stable. We'll see. When do you think Wordzee will contribute significantly to growth? I think we'll start to see that very soon. As we are now scaling up in user acquisition, that response comes pretty quickly in terms of revenues. It's when you come all the way down to actually positive contribution that has more of a time lag effect. On the revenue side, we expect Wordzee to start contribute now. Contribution side, like game contribution, that's more of a time lag. Are you satisfied with the progress you see with Wordzee? Should be close to 1 million downloads according to Google Play Android. It's been downloaded over 500,000 x.
Mentioned Wordzee has the highest ARPDAU of all your games. Can you give an exact figure? I think what we talked about previously is that we don't want to launch new games if they don't have more than SEK 0.10 ARPDAU in the U.S. market, and Wordzee is beating that easily. The ARPDAU 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. When we look at how we benchmark our games against each other, for example, we tend to look at the U.S. market to have apples to apples. There we see that Wordzee is the strongest game we have in the portfolio. Expectations go up in terms of how much and for how long we should be able to scale that game.
When it comes to 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 a download milestone, for example. Is MAG a stay-at-home share? We heard this phrase before. 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. Again, I don't think there is any winner when the entire world economy is shaking. 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.
In that sense, I'd say that we are a stock that probably should perform better in this strange market situation. 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 timeframe when we can see subscriptions implemented in Ruzzle, QuizDuel, and Wordzee, as you mentioned in the report? I think the timeframe for subscriptions going into all the multiplayer games is during 2020. We talked about being agile and adapt to how the market is changing right now. I think that has an impact on the game team's roadmaps as well. 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.
It's an increased focus when you talk to the game teams when it comes to supporting even better social features. We'll see. I expect subscriptions to come fairly soon in QuizDuel, for example. The question about percentage, I don't know where that's going to end up, actually. We saw 20% now of IAP revenues for Word Domination. The subscription model is very interesting in terms of low churn rates, and the value of those customers are really high. Actually, as we are now coming into April, it's more than 12 months since we started subscriptions. 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. That's going to also continuously help a little bit on the contribution side.
Yes, perfect.
Okay. Where are we? Can we expect new game releases this year? We generally don't comment on that, basically because we don't know. When we go out with test launches, that data will inform us if we should package it up and then move to soft launch with that game. That soft launch could also be longer or shorter. It was extremely short with Wordzee. I think we were in soft launch for 30 days.
Sometimes you will stay in soft launch for a longer period of time. If you mean 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 will, unfortunately for the person asking the questions, keep being an unknown. We'll have to wait for when we press release about soft launches. You mentioned that you have games in different development phases. Oh, that's the same question. Have you not considered using part of your cash for repurchase of shares since you yourself have shared in your presentations, the share is too low to make a major acquisition? This is actually something we cannot do.
Exactly.
Unfortunately.
Under current Premier, we cannot buy our shares back, otherwise we would consider it.
We would love to make the cash work better for us in some way. That's for sure. How much did you lose on Spiltan?
We divested on that in March, registering a loss of at least less than 1%, which I think we feel okay about given the circumstances. We felt that we should have those cash in bank instead of at any risk at all at this point. Hopefully we can put it to good use from where it is right now. It's less than 1% would be the answer on that.
Yeah, exactly. It's not a good time to invest right now in some instruments.
No.
I'm really happy we were on top of that and quickly active when we felt that We're not in the business of speculating in investment, for example.
No.
That was a good move. Why not include more game modes, VIP subscriptions, IAPs in Q2 from the start? This is actually a question that you can talk about quite a lot in mobile games. How much should you make the product finished in a sense before you go out in the market? What we've seen with our games, like Ruzzle is on year nine now. The games keep evolving over time, and usually you make better product decisions if you actually have player data. 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 post-it notes on a whiteboard. Getting out there, actually listening to the players and measuring their behavior is a really good way of doing product development.
I'd say I prefer to get a game out that's good and continuously make it great over time than trying to make a great product within your four walls of the office. Expectations are that game as well as other games will continue to be better and better over time, as we've seen, for example, Word Domination, which is a much better product now than when it launched.
Yeah, I think we responded to the Spiltan question, right?
Yes. Do you see any risk that the ad revenues will drop significantly in the quarter due to Corona?
Yeah, 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 affected so far. That's the actual effect in the 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. That's where we are right now, and we're moving into the next of the quarter with that.
Yeah, I think uncertainty is the topic for April and May. 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? It's mainly Word Domination and Wordzee. In this very quickly changing user acquisition landscape, we might open up for investing in a multitude of games now. We'll see. When you look at Q2, which all of the quarter was in a very normal landscape.
Yeah
we kept on doing what we have been doing. That's growing Word Domination, and then, of course, when launching Wordzee, also started supporting that game with user acquisition. Then we'll see over time if even new QuizDuel will get substantial user acquisition support or not. The primary growth driver we expect for new QuizDuel will be cross-promotion of existing QuizDuel. You have to get ROI in 180 days and have a stable UA spend. With those inputs, one could expect the revenues to be increasing steadily. It seems your UA spends for more than 100 days ago, it's not over 100% in ROI, since it's up, assuming. Okay, I should read the entire question. They should be more significant. How good are your ROI models in terms of success rate? I say we have a very good ROI models.
The complex thing to understand when looking at the entire business, we try to discuss that from time to time, but it's almost like two different businesses. You have one existing user base that you optimize against, and then you have user acquisition growth. You also, in the existing business, you have single-player games that are on the decline, and you have multiplayer games that are stable or growing. 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. It's safe to say that the one game we have been marketing in the last year is Word Domination, and then we added Wordzee. That's something we talked about a couple of times or every quarter, I guess. Those are growing games.
It's only part of the portfolio. We have a number of games adding to the net sales part. We realize it's hard to see from outside exactly where that plays out.
In general, we have a very high confidence in the ROI models. Yes. Yes. The more, say it 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 it's actually working really well. Yes. What's the historical average playtime for a QuizDuel player that choose to play more than three months? Oh, that was a very specific question. I'd say I actually don't know. What we do sometimes is look at how big. 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. Just peek into the games in that fashion. Yeah.
That's pretty amazing data you get out from these older games. Where you can see vast majority is more than two or three years old, even. Exactly. Incredible retention for those cohorts. That's of course, because we've distilled more than 100 million downloads down to a few million players, so they are super fans of the game. I expect most of those to basically never stop playing. That's the pattern you see. We have people that downloaded Ruzzle the first week after launch in March 2012 that are still playing. When it comes to, for example, user acquisition modeling, we look more at the first year or so behavior, so we can see we get payback in 180 days and then start generate profits within the timeframe that's actually reasonable for us as a company. Exactly.
Will you invest in UA for new QuizDuel during the migration period? I think we will do that. We are doing some user acquisition right now as well, 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 the product and so on. The main driver will be cross-promotion for sure. We have several million players of classic QuizDuel, they will be high value as well compared to targeting the average person on the internet. I hope we will be able to support that with user acquisition long-term as well. Have you been doing some hiring lately? How large do you aim to grow the team for now? Yes, we have been doing hiring lately.
We are primarily investing in the production side of the organization. Always looking for strong developers and artists and so on. 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. We might not be able to hire at a pace that we would like. We'll see what happens.
We're also trying. We are adapting and learning. It's a new situation for us as everyone else. We're trying new ways to do recruitment. Yeah. Outside walks instead of inside interviews. For example. We're trying to work on as if this didn't happen. Yeah. We try to find new ways to do this because strengthening our teams is as important today as it was a month ago.
For sure.
We're trying to get around it and continue to expand the roles that we intended to do before COVID-19.
It's fairly similar to what you've seen from us previously. That maybe the team expands with five, 10 people net every year or so. 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 four or five and up to maybe eight people will work on that game for a very long period of time. In order for the kind of pipeline of new games not to dry up, you need to recruit a similar amount of people. I'd say when we launch a new game that's successful, we will kind of recruit to replace that amount of people. That gives you a kind of ballpark.
If we launch two games, maybe we need to recruit between 10 and 15 people. If we launch one game, it's going to be more between five and 10. I think that ballpark gives you a sense. We're not growing super quickly. Okay. Have you seen a decline in Ad demand price?
Okay. I take that as a CPM question. Yep. It's part of why we wanted to also give those two KPIs today that we can only talk about what happened so far, and I guess that's what the question is about as well. The stable ARPDAU is a sign that we haven't seen an effect yet of the demand of our ad spaces.
Yeah.
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? That's something that's kind of in the definition of what a multiplayer and single-player game is. 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 core of the game experience. Maybe social is even more precise as a description than multiplayer. The game should be more fun with friends. That's kind of the basic idea with our product development.
Okay. If I'm right, we're done with the questions here on Twitch. Just a reminder, if anything else comes up, we're going to continue to answer questions on Twitter during the remainder of the day. Thank you for listening.