Hello, welcome to MAG's Q1 report. Here to present today is me, Daniel Hasselberg. I'm the CEO of MAG.
Magnus Wiklander, the CFO.
We're gonna go through the highlights of the report as usual, then at the end, we'll have a few minutes for Q&A. Also throughout the day, we'll answer any questions on Twitter, and there's a link to how you can reach us on Twitter. Let's talk about this period. It's September, October, November that we'll discuss today. The highlight is, of course, our 39% revenue growth, reaching the highest revenue ever in the history of the company, SEK 97 million. Something we're super happy about.
Yeah, we'll talk about the increased user acquisition, which is also a big part of the report, obviously.
Yeah.
Starting out with the audience KPIs, where we see, the DAU coming in at the lower level, and that's at 1.2 million. This is reflecting the targeting we have in the user acquisition and the influx of, lower volumes of higher value users.
Mm.
that we have. At the same time, for the same reason, we see ARPDAU going up from $0.057 to $0.078.
Yeah, I think part of what we see here also with this higher user quality is you can see that in the in-app spend. Consumers tend to spend more in the games, these high-quality players. The revenues overall are up 39%, the in-app revenues are up 75% this quarter.
Yeah. User acquisition is up significantly from SEK 15 million to a record level of SEK 51 million. We will have a look at that sequentially to also understand the dynamics of where we're at. We see how user acquisition is growing from the high levels in Q4 of SEK 43 million to SEK 51 million in Q1, that's on the back of a few quarters of lower level spend. After the quarter, we've seen slightly lower volumes, so they're sort of quarter to date are more in line with the fourth quarter.
Exactly. Like if you think SEK 50 million in Q1, it's more like SEK 40 million right now, but we're only halfway into the quarter, and we continue to be really like looking forward to invest more any opportunity we get when we see that our models work so well and support kind of profitable UA. We'll see where we end up, but, right now, half into the quarter is more like SEK 40 than SEK 50.
Financial KPIs, again, up from SEK 70 million net sales to a record SEK 97 year over year, that's sort of on the back of the strong user acquisition we have and also a strong U.S. dollar. We already mentioned ARPDAU up 38%, and we remind ourselves here that ARPDAU is in U.S. cent, U.S. dollar cents, so that we're sort of free from the currency effects that we have on net sales and look at more the fundamental monetization of the games and the user quality.
Yeah. If we look at the contribution here, that's what's left after you deduct UA investments and paying platform fees, so it's SEK 15 million less than a year ago. The big effect here is, of course, user acquisition, which is like SEK 36 million more than a year ago, but also a bit of it is platform fees. 75% more in in-app revenues also mean that we pay more to the platform, so it's about SEK 6 million more in platform fees this quarter compared to one year ago. Looking at also the cash position, we still have more than SEK 100 million of cash at the end of the quarter, so that's good news for us when we look at UA investments going forward.
like the only thing we need to be concerned of is do we have good support from our models? Can we invest with profitability? If we can, we are in a good position in terms of the amount of cash we have. We really like to have cash out working, creating profitability for the company. This is a really good thing for us. Yeah, speaking of that, we see a lot of opportunity for growth. Obviously, we've been growing really nicely over the last few quarters. You can see also if we look here in the picture with the same, with UA sequentially and the revenue development and the EBITDA margin, they're strongly correlated. When we do increase user acquisition quarter after quarter, it pushes down the short-term profit margins. But that, it's just dynamics.
When you have more than a quarter of payback time, it's going to be like this until kind of revenues catch up.
Yeah. Over time, with more data building up for Wordzee, we also can get more knowledgeable about long-term LTVs and strong retention. This allows us to comfortably sort of extend the payback window for Wordzee somewhat. Currently, we allow for a 75% return in the 6 months, as we mentioned in the report.
Mm-hmm.
This is still while maintaining a healthy overall margin of the marketing itself, long term, and sort of never compromise with profitable UA ever.
No, exactly. Yes, this opportunity is something we're gonna continue to go after. That's for sure. If we take a couple of steps back here and look at the last four years of development for MAG, we've been showing a good growth here for the last 17 quarters. It was about four years ago, we started talking about like, okay, we need to focus on ARPDAU That's our weak point as a company. We started at like two and a half cents or something four years ago and really worked on that. What's interesting with this picture as well is that all these kind of We talk about three different growth engines for the company. One is extending the portfolio with launching new games and acquiring new games and so on.
Here, of course, we launched Word zee and new Quiz Jewel and Tile Mansion, and we acquired both Primetime and Apprope. The second engine is increasing user acquisition investment, something that's going really well for us right now.
Mm-hmm.
The third is continuous improvements of our games, like the LTV improvements on the live audience we have. These all play together to create this picture of this is a 13th straight quarter of year-over-year growth.
Okay.
If we look at slightly more recent, the last nine quarters, we see this strong correlation between ARPDAU improvement and revenue growth. Just a bit of a reminder in this picture why we have this little blue thing here is we had a one-time revenue event in Q3, which was we shifted to a new advertising platform, and we got a transfer bonus of about SEK 14 million .
Yeah. Speaking of the ARPDAU journey, it's been going on for quite a while, as already mentioned. Here we see the journey from SEK 0.04 -SEK 0.08 , where we're close to SEK 0.08 at the moment. It's a combination of our focused development work on new games and existing games. As new games are generally on the SEK 0.20+ Global ARPDAU, we expect this to continue to develop going forward.
Mm-hmm
... as well.
Yeah. Definitely a focus continuously to increase the ARPDAU, and part of this, we come back to that a lot in the report in this presentation, like the high-quality users we get in at a much higher ARPDAU really helps this trend as well. Yes, here it comes. Waiting a bit for this picture to show.
On the product mix page, as always, we have our live ops portfolio on the right-hand side with the evergreen long-term strong retention games with a stable, long-term monetization behavior, delivering around SEK 100 million yearly in run rates, the good profit and sort of run by focus small team, to deliver this for us.
Yeah. This kind of 8-people crew has a lot of revenue that they're handling. Really important to understand in terms of how we think about product portfolio development is, like, we build the games with the same set of tools and make it easy to live operate in an efficient way. The, the newer games and the growth games, they will at some point end up being run by this lean live ops team. Looking at the growth part of the, of the portfolio right now, it's growing really nicely, doing SEK 70 million this quarter, and it's actually the same amount of revenue as the entire company did a year ago. Wordzee doing a record quarter. Quiz Jewel also beating last year's Q1.
Tile Mansion, as we mentioned in the report, now early Q2 expanding to French and German-speaking markets. This is really early days. Like, as we see with Wordzee , it's three years after launch and still doing kind of record quarters, so there's a long, exciting journey to come for Tile Mansion. Looking at the newer unreleased games, we talked about that in 2022 as well, like we're investing in the capabilities of making these kind of renovation-style game with a light narrative and a casual puzzle core in it. They're quite big projects. We want to do it in an efficient way. Now we built more of a framework for building these kinds of games. That means that we can simultaneously test multiple games with the kinda same software.
We're currently testing two different core mechanics in a new renovation-style game. Also we have a multiplayer word game that we just put out in test during Q2 here as well that have some really interesting numbers. A lot of good stuff happening in that corner of the business as well.
Yeah.
Yeah, coming back to this, as I mentioned earlier, with the growth engines, this is what we're always focusing on as a company. Getting new games out, we have the ambition to soft launch multiple games this year, hopefully get a game out globally. It's always about being disciplined, looking at data, and creating these new evergreen titles that we can grow for years to come. That's the ambition, to launch games this year as well. And we also have the M&A opportunity. It's a very different market right now than.
Mm-hmm
... a year or two ago. More games are up for sale or studios, and it could be all kinds of reasons, but it could be hard to finance user acquisition or hard to raise the next round of capital. Yeah, we're in continuous interesting discussion over the last few months.
Yeah. User acquisition is an important organic revenue growth generator, and so we're super happy to be where we are. We can spend. There is an opportunity in the market, and we have the muscles to do it as well.
Of course, what, a lot of people here at MAG work on every day, which is kind of just making our games better, improving the player experience, make sure they have more fun, stay engaged, which helps the LTV curve last longer, so just improving the live products. Also want to take the opportunity to thank everyone at MAG that helped get to this record quarter for us. But looking ahead, the first quarter of this financial year, great to see record revenues, new games in development, and that we can continue to invest at this, very high level on the UA side of things. Great start for MAG. With that, I think we move over to looking at if we have any questions.
Again, a reminder that we will continue to answer questions on Twitter throughout the day if you, if you address it to me or to Mag. Checking here on the computer if we have some questions. We have one here. Are you happy with the amount of money you invest in UA at the moment? I'm happy general with the levels we're at. We always want to invest more, that's why we think about, okay, how much confidence do we have in the data? Can we put even more money at work, and so on? That's a question we always ask ourselves and see if we can up this even more because the more money you have out working with a good profit margin, obviously the better.
Comparing to a year ago, I'm very happy to see us now pacing at SEK 40 million-SEK 50 million instead of SEK 15 million.
Mm.
We always aim higher if we can. Okay. What's the normalized EBITDA % you're targeting medium term with normalized investment in UA? I think this refers to what if UA investments were stable over time rather than increasing.
Mm.
I think that's a very relevant view of kind of understanding how they're like just ongoing businesses.
Yeah.
What you could see if we rewind maybe a year or so, we were going SEK 15 million per quarter, quite steadily.
Mm.
You saw like the EBITDA margin hover between 20% and 30% a bit depending on quarter, and the EBIT margin also creeping up. I think we had an EBIT margin of around 10%. Our longer term goal, as we talked about, and I think it's part of our financial targets, is get to 20% EBIT margin, but we need to grow a bit further to reach that. On this question, I think between 20%-30% EBITA margin is reasonable to expect when UA is more kind of stable. Okay. Do you think the mobile market has bottomed yet, or when do you estimate that to happen? Yeah. This is I think referring to a lot of industry reports from like Newzoo and Data.ai and those, Sensor Tower and so on.
I think they've all pointed to like H2, like second half of last year, the mobile games market did decrease a little bit.
Yeah.
Some say 2%-3%, some say 6%-7%. I think it's hard to know the exact numbers, but it's a shift in trends obviously from like growing every year for 12 years or so.
Mm.
I do think it strikes different parts of the games industry differently. Obviously very different from PC console, but also within mobile, different categories are impacted at different ways. I think both the ATT from Apple, worse attribution of UA, I think that strikes harder for games that are very dependent on a few very high spending players. And also maybe the consumer spend. Like in general, I think in our kind of games, people spend maybe as frequently or even more frequently, but smaller sums of money. It doesn't seem that they are as impacted of a bad time. I think even if the market continues to go fairly poorly in 23, not as sure that it actually will have a big impact on us.
I also looked at this kind of the revenue mix, we saw our in-app revenues grew by 75% versus last year. It also shows consumers are willing to spend in our games.
Yeah.
Not any signs of recession there. Yeah, to the question, does it bottom out to 23? Let's hope so. Not super relevant to us, I do think. Okay. Do you still see your genres particularly resilient in a recession? That's kind of similar to what I talked about. Yes. Given that we see the signals of higher than previous consumer spend in the games, When I read about other kind of expert opinions, they seem to agree with us that-
Yeah
casual games are probably less hit by recession economics. Okay. How do you think about investors demanding short-term profits over longer term user acquisition and growth? Here, I think it's actually really valuable for us to have still a very founder-heavy management of the company. I'm the biggest owner in the company. We have a lot of big ownership of people operating the company. We always have the long-term value of the company at heart when we make our decisions. We don't have to be... Of course, we care about what the market thinks, and it's really important for us to explain why do we make these decisions. They are profitable. It's creating value longer term. We would not hesitate to invest more in user acquisition because it would impact the short-term result.
That's something you see today in this report, right? Obviously, EBITDA margin's going from 25% down to 0% over a couple of quarters. That doesn't look good short term, it's the right decision, that's why we're doing it. Okay. What's the next one? Give some color to how you intend to go from today's break-even business to a 20% EBITDA medium long term. Higher spend per user or back to significant user growth? Yeah. That's a great question. I think what, when we look at UA in general, it's you wanna put like, put in a dollar and get $1.50 back or $2 back over some period of time. You just want to do that with as many dollars as possible, you get profitability.
A good thing with the business model in general is like We don't need to have 5x as many people working at MAG if we have 5x as high revenues or 5x as many players.
Mm-hmm.
Just growing the business in general with the same kind of margins on a gross level means that the EBIT will start to show. We need to grow a bit to this to get an EBIT margin of 20%. The fundamental kind of unit economics is really strong, we just need to do more on what we do. The trend in terms of is it users or performance per user that's gonna help make this happen? It definitely looks like it's more the performance.
Yeah.
It's more likely that we see an ARPDAU average that is 3x bigger than today's at some point than to see the DAU 3x bigger than today if we do what we do, right?
Exactly.
Our UA is very focused on USA and Tier 1 markets, so they tend to be expensive and high quality.
Mm-hmm.
Our new games also tend to be much better at monetizing, so ARPDAU going up. I mean, you never know. We have had freak incidents in the past, like QuizDuel blowing up in Germany or Ruzzle in Italy and so on.
Mm-hmm.
If that happens, the game completely shifts, much higher DAU, much lower ARPDAU. The kind of user acquisition-driven growth is more likely to be the trend we see right now.
Yeah.
Yeah. Okay. was the generated revenue from UA spending in line with your expectations? Please comment on how your model have performed during Q1. Maybe you wanna take this one.
Yeah. Yeah, the answer is yes.
Mm-hmm.
We model all our UA always, and we are very super strict with having it profitable, and the sort of healthy margin on top of anything we spend in marketing side of the business. Yes, and as we comment, we have been able to lower what's extended payback time for Wordzee a little bit, and that of course affects the models but doesn't affect the fundamental answer that the margin is there.
Mm-hmm.
Yeah, it has developed well and according to plan, and we continue on the same plan as we speak as well.
Yep. I mean, the great thing with having this kind of, sometimes you talk about as Games as a Service or whatever, but a game that's been live for not months but years, I mean, the oldest game even more than a decade, is that you get so much comfort in the data. They tend to like be very predictable after a while.
Mm-hmm.
The longer we've been in the market and the more money we've spent on user acquisition per channel and type of campaign and so on.
Mm-hmm
... the more confidence we get.
Yeah.
It's actually creates a lot of value on top of just the profit margins, we get better and better modeling.
Mm-hmm.
So it's-
Mm-hmm
... it's really good effect. Okay. Was UA push even throughout the quarter, or was it more focused at the beginning or end of the quarter? As I say, it was fairly even, I think maybe slightly more in October and slightly less in September, November. It's even enough that I think if you are one of these persons that try to model the business in Excel, for example, taking an even spend is a pretty fair picture.
Yeah
... of the quarter. What's the expectations on Tile Mansion for the coming year? Tile Mansion is a really interesting title. There's a couple of other games that are playing around with a similar core mechanic, this kind of Mahjong style mechanic, and we've seen some of those games grow really big. They are like the biggest player in that kind of category. I think it's doing somewhere $200,000-$250,000 per day in revenue. It's a huge thing to go after. This is all about kind of optimizing the product, focusing on long-term retention, running UA, and like make sure the models kind of learn and make better predictions, and then we can continuously invest. Our ambition here is to like continue to grow that game for a long time forward.
Mm-hmm.
It's definitely an interesting space. I, something we maybe haven't talked about that much, most of our games are in the word and trivia category, and they have their pros and cons. They're, we're quite heavy on localizations. You can't have a trivia or word game in Germany or Italy in English. It's quite the effort to get there. Of course, you have more barriers to entry for competitors. The thing with Tile Mansion is interesting because it's just general puzzle mechanics, maybe it has a bigger kind of global potential. We can try that game out in Asia, for example, and expect to see more traction than with a word game that they don't tend to play in many Asian countries. Okay. Here's another one on payback periods. Do you wanna talk about that?
Yeah, sure.
Mm-hmm.
I guess this is a combination of the opportunity we see in the market and a game being perfectly, you know, in sync with that.
Mm-hmm.
We have Word zee in the market where we can trust really long curves. We have history going back three years for Word zee.
Just gotta read the question out loud here.
Oh, sorry. Sorry, yeah.
Yeah.
Is there a specific reason behind lengthening the payback period of UA now and not in the previous quarters? The timing seems odd from the outside, given that the decision comes six months after starting a more significant UA push.
Mm-hmm. Yeah.
now back to the answer.
Yeah.
Yeah. It's a combination of market opportunity and games being positioned differently and, and the data side we've mentioned. We want to sort of capture when we have the opportunity to invest in marketing, that matches Word zee well, and we have seen that we have the data and to do this, and we have the opportunity to spend. That's I guess where the timing it comes out from.
Mm-hmm.
It's not more complex than that really, so.
No. I think if anything, like seeing payback periods stretch over time, that's natural. I mean, I'm saying the same thing as you basically. The more we learn, the more confidence we have, and the more we can invest in terms of bidding in these kind of auctions to find new users, the bigger volume we can get. We are obviously trying to get them kind of the maximizing the absolute profits.
Mm-hmm
... rather than the percentage. It's better to spend twice as much at a slightly lower margin than to not be able to spend that money. We talk about that quite a lot in terms of kinda is there an opportunity in the market, we need to like lean in. Sometimes, like a year ago, we were kinda stuck at SEK 15 million per quarter, and we couldn't expand even though we had the same ambition.
Yeah.
The window just wasn't as open as it is right now. We need to take opportunity really when we see this, and I'm super happy with the spend levels we see there.
Mm-hmm.
Good. That was the end of the questions we see here, so, but please do ask more questions on Twitter throughout the day, and we'll gather together and answer anything we can, as best we can.
Mm-hmm.
Thank you for watching.
Thank you.