Good afternoon, everyone, thank you for joining MTG's live stream and teleconference for our first quarter results. This event is hosted by our Group President and CEO, Maria Redin, and CFO, Lasse Pilgaard. After the end of the presentation, there will be an opportunity to ask questions. If you're watching the live stream, please use the questionnaire feature in the video stream to submit your questions. If you are joining us today by phone, please follow the operator's instructions after the presentation is finished. I now hand over the word straight to our CEO, Maria.
Hi, everyone, and thank you for joining us. Our performance in the first quarter and the dynamics that we see for the rest of the year underscores our conviction that you need a strong, diversified portfolio of evergreen IPs to drive long-term sustainable growth. On top of that, we believe more than ever in creating relevant scale through a synergetic approach. This will enable us to accelerate growth and create incremental value over time with the help of our group initiatives. Looking onto this quarter as a group, we do have a quarter with two quite different stories. On one hand, we continue to have underlying strong performance in our Word Games and our Tower Defense franchise. We saw positive underlying growth and good momentum from both PlaySimple and Ninja Kiwi in Q1. On the other hand, InnoGames had a tough start of the quarter.
It followed sort of the similar trend that we saw in Q4, but it had encouraging positive momentum during the second half of the quarter. They also in the quarter, or end of the quarter, actually, announced a strategic reorganization in early April to reposition the studio for future opportunities. PlaySimple, in particular, continued to deliver stellar underlying results. Their established games continued to perform, but what we're really excited about are the two new games, Crossword Explorer and Word Search. Both titles are scaling rapidly, they now represent nearly 10% of the Word franchise revenues. To add to that, as we went into the quarter, we didn't really know what to expect when it came to the CPM levels, but we're really happy to see that PlaySimple actually managed to maintain stable levels in Q1.
That's actually quite unusual as we normally see a decline coming in from Q4. InnoGames continued to face a challenging environment coming out of Q4, and we're still affected by low visibility, Apple's IDFA changes, and the macroeconomic uncertainty. This together with some underperforming events in the quarter led to a really tough start of the year. We did, however, on a good note, start to see gradual improvements in the performance of the Strategy & Simulation franchise during the second half of Q1, and also we saw the same strong performance continue throughout April. That led to better monetization of existing users and key events helping reactivate all players. We also saw the first sign of an improved marketing landscape for these games and genre.
Looking for the group, our revenues were down 4% year-over-year to SEK 1.3 billion in reported currencies and down 11% excluding currencies. The decline mainly reflected two factors. The first one was the InnoGames revenues were down quite a lot year-over-year because of the continuous softer sales in the first half of Q1, and as I mentioned just before. The second was that PlaySimple booked the first out of three payments for their platform incentives last year, and that means that they are facing inflated comps year-over-year. This payment impacted the year-over-year revenue decline in Q1 by roughly five percentage points.
Looking at our adjusted EBITDA, we reported a margin of 20% in Q1. I think it's worth noting that our underlying margin would have been slightly up year-over-year if exclude the platform incentive payment that I just mentioned. Also when taking into account the change to our adjustments to the EBITDA margin that we adopted in Q2 last year. Our margin performance reflected a blend of some effects. We had an underlying high profitability in InnoGames, and even though they had lower sales in the quarter, they actually invested less in marketing, especially than in the first half, combined with a high underlying profitability for PlaySimple due to the strong underlying performance. The underlying results were somewhat upset by ongoing investments in the Web3 initiatives that we're doing in Kongregate, as well as investment in Hutch making new games.
Let's now take a closer look at our sales. The group sales were down 4% year-over-year in the quarter, that is despite the 7% boost from positive currency effect. While we do have many things to work on, and we'll touch upon some of them later, we're also excited about many things in the quarter. As I mentioned before, PlaySimple continue its strong performance in Q1, and the growth really comes through successful live ops within the Anagram franchise in particular, combined with the fact that they now have two new games that they are rapidly scaling. Similarly, Ninja Kiwi's flagship title, Bloons TD 6, continued to perform well in the quarter. Even though the sequential sales performance was down because of the successful Steam sale they had in Q4, Ninja Kiwi really showing what a strong IP can do to revenues.
Also in the beginning of the quarter, so too, they actually now launch a successful update to the games, and that was followed by a successful Steam sale. Hutch revenue reported a slight decline in Q1, that is really driven by closing down some of the catalog games. You should remember that Q1 is also normally a seasonally slow quarter for Hutch because they need the Formula One racing season to begin to do the annual reset of the Formula One Clash. On a positive note, Hutch did have larger than unusual sales when the Formula One season started in March, even though not having done the reset yet, which is really a testament to the popularity of the IP.
As I mentioned earlier, InnoGames had a challenging time in the first half of the quarter, but they really saw improved performance towards the end of the quarter in Forge of Empires and also going out of the quarter. This is really encouraging and is really driven by several successful events now in March and in February. After the quarter end is announced, InnoGames announced a strategic reorganization in early April. The leadership team wanted to make sure that the company is moving forward faster, becoming more agile, and of course also then adjust the overall cost base. That is really to better reflect the current market and the performance. The goal is to enable core teams to be faster and be more efficient in their work to drive the current games and to also accelerate the development of the new games.
Unfortunately, this reorganization also means that InnoGames had to part with 75 colleagues, which is, of course, always a very difficult thing to do. Let's now look more closer to the franchises. As I mentioned before, Word Games continued to do really strong, and it's now been the largest in our portfolio for five sequential quarters and is reporting growth strongly every quarter. Franchise revenues increased by 6% sequentially, but were down year-over-year by 7% in constant currencies. The decline reflected the platform incentive that I just talked about before as well. The sequential growth came from both established and new games. The team has had an ambitious content pipeline that focused on ad revenue optimization and also improving retention in key titles like DTC, Word Trip, and Word Jam, and that comes through live ops and both in-game content.
We're also very excited, as I said before, to see the double-digit sequential growth of the new titles, Crossword Explorer and Word Search. These games now represent close to 10% of the franchise revenues in March. We're also able to successfully scale up marketing behind these games. The Strategy and Simulation franchise did have a tough start of the year. It did demonstrate possible momentum towards end of the quarter and also going into April. Franchise revenues were down 9% sequentially and 21% year-over-year in constant currencies. The biggest driver of the decline were the lower revenues from Forge of Empires and Elvenar. Forge of Empires did have successful events in February and March, which managed to reactivate all players.
We are seeing encouraging signals and momentum in Forge of Empires with our events successfully executed, reactivating all the players and also increasing revenues from the established players. The team also continued to develop Forge in the quarter with several exciting content updates, including improvements in particular in the early game experience. The new games of InnoGames, which we talked a bit about, Rise of Cultures and Sunrise Village grew in the quarter but at low levels. Neither game has really managed to scale successfully, and InnoGames is taking action to change the trajectory. For Sunrise Village, we do have a pipeline of new content that is expected to deliver improvements throughout the year. For Rise of Cultures, the team is working on a larger revamp of the game towards later this year.
Both these updates are expected to take the games to the next level of scaling, and as we see that, we continue to put more marketing behind them. The racing revenues were down 3% year-over-year and 23% from Q4 last year in constant currency. Formula One Clash follows its normal seasonal pattern with sales down sequentially while the game teams get ready to launch the 2023 season reset. Keep in mind that the season reset is coming as the Formula One racing season starts each year. For this year, we expect it to come in May. The game did, however, experience a boost in performance, and we saw all players reactivating when actually just the Formula One season started already in March. Top Drives continues to perform well, this is thanks to the work done by the team last year.
The game's first-ever TV ad also went live in February, and given the success of that, we are now also looking into the possibilities of adding TV ads for Formula 1 Clash. Our Tower Defense franchise continued to showcase the power of the Bloons IP and the passion of the player community. The franchise had another strong quarter with revenues growing 5% year-over-year. While sales were down 14% sequentially, we need to remember that this was predominantly driven by the strong Steam sale that we saw in Q4 last year. The latest highly anticipated update, 36, from Bloons TD 6 was launched now in April. That was now followed by another successful Steam sale here in April. The update that we did included a brand-new tower, map, and other key features.
Ninja Kiwi games also continued to perform well on third-party platforms like Steam and Apple Arcade. This we add in more and more platforms to ensure that the title and the game are exposed to broader player audiences. What is exciting to us is that Ninja Kiwi is working now on a version of Bloons TD 6 both for Xbox and PlayStation, which will be an exciting development because it helps players to experience this IP on platforms outside mobile. When it comes to Bad Ass 2, which we talked as well about quite a lot last year, we're working to improve that. As we see improved performance, which we're hoping towards the end of the year, we will then start scaling marketing in the future.
Last but not least, I want to talk a little bit about Kongregate. They continues to invest in the development of the Web 3.0 gaming, and they also have the portal, kongregate.com, where we now publish five games from external developers in Q1. The Bitverse games report an increase in engagement with the NFTs every week in the quarter. Despite that, Kongregate's portfolio still experienced a decline in revenues year-over-year. Bringing new games to the market is a priority for us. That's also why I'm really excited about the two games I mentioned before, PlaySimple's new titles, Crossword Explorer and Word Search, which both shows very strong traction in the quarter, which enabled us to scale up marketing.
When it comes to the established games, PlaySimple had a busy quarter with a wide range of new features for both the Anagrams and the Crossword franchise games. Looking onward to Hutch, of course, what we're looking forward first and foremost is a season reset of Formula One Clash, which now takes place in May. Further, the team is also working on developing two new titles based on both international licensed brand, which they expect to at least have one launch coming in this year and possibly also two. Both these games, as we do early retention data testing, are looking very positive. Looking a little bit further out on the timeline soon, Ninja Kiwi has three games in the pipeline.
This is both games within the existing, but also totally new IPs, and we're very excited to see this hopefully reach the players in 2024 and 2025. Kongregate, on their behalf, is also working on a new traditional title based on a major global entertainment IP, looking to soft launch it early next year. InnoGames is, as I also previously mentioned, focused on the work to improve both Rise of Culture and Sunrise Village. They have a clear plan for each of these games for the year, and we are excited to look forward to see the improvements come through so that we can scale marketing further. They are also aiming above and beyond what they're doing in the mobile version of it to also launch Sunrise Village in the second half of the year.
Our total number of daily active users and monthly active users were down in Q1. This is mainly because of the challenging environment in attracting and retaining players in our mid-core segment. We have, however, seen a very positive momentum in our casual player base. This is of course, thanks to the fantastic performance from the PlaySimple's gaming portfolio. That is almost offsetting the overall decline in DAU and MAU for the quarter. Our average revenue per daily active user was up by 8% year-over-year. This is mainly due to a high proportion of veteran players in our mid-core games. Our top three performing games in the quarter were still Forge of Empires, Word Trip, and Word Jam. Together, they represent 44% of our revenues in the quarter, compared to 46% in the fourth quarter.
Now I'll hand over to Lasse, who will discuss with you our profitability and financial performance.
Thank you, Maria. Our adjusted EBITDA margin landed at 20% for the first quarter of 2023, which equals just above SEK 1.3 billion. We talk a bit about the margin and compare that to the first quarter in 2022, in 2022, we had similar marketing spend as a percentage of revenue. However, in Q1, we also had basically a positive impact from the platform incentive payment in PlaySimple, as Maria has mentioned. Also in Q1 2022, we did not adjust for incentive cost in the same way that we're doing now. As you know, we are only adjusting for the non-recurring items.
If one were to correct those two, or you could say exclude these two effects in the comparison numbers back in 2022, our underlying margin would have been 19%, and hence year-over-year, we are up 1 percentage point. This underlying improvement reflects margin improvements in both InnoGames and PlaySimple, offset by lower margins in Kongregate and Hutch as a result of new game investments in both of those companies. The increased investment level in our new games are also reflected in our CapEx levels, which equaled 5% of revenue for this quarter. As a result, we saw a simple cash flow margin, i.e. adjusted EBITDA less CapEx for the quarter at 15%. On the bridge between adjusted EBITDA and reported EBITDA, we had non-recurring bonus items related to the PlaySimple transaction of SEK 13 million .
We've had that in every quarter the last five quarters now. As you know, it's gonna last until end of 2024. We also had SEK 5 million of transaction costs that we adjusted for. Maria will later today comment on our full- year outlook, including for the margin. I just wanted to note a couple of things when it comes to margin developments Q1 versus the coming quarters and what you should expect to see. We are seeing that margins will be higher than Q1, driven by three different factors. One being that, as you know, marketing spend is typically higher in Q1 compared to Q2 and Q3. This, of course, depresses margins in the first quarter. Second factor is that we expect continue to increase every quarter from here on a sequential basis throughout the year. Also will help support margins.
Three, we have already taken action to reduce our cost base and generally are very cautious on our operating expenses across all portfolio companies where the visibility is low. If we're moving to UA spend, if we look at the total spend level for the quarter, we ended up at SEK 537 million that we were able to scale within the ROAS thresholds that we have. This represented 41% of revenue, it's similar to what we did in Q4 and Q1 last year as a percentage of revenue. Q1 should therefore be seen, at least we are seeing it, as a quarter with strong user acquisition spend.
We are very happy to report this and see that we are able to start scaling again after having had some quarters where we weren't able to scale to the level that we wanted to. The quarter did, however, start with difficult market environments, but towards the end of February and March, the market did become better, and we were able to start scaling marketing. This goes very much across all portfolio companies but was very strong effect in especially InnoGames. If you look at PlaySimple, the scaling did also happen throughout the quarter but was more, you could say, linearly distributed across the different months, and especially the new games are making up majority of their scaling.
To give you some kind of idea, approximately 20% of our total spend in PlaySimple was actually going to their two new titles in the month of March. In InnoGames, as mentioned, we maintain similar absolute marketing spend levels as we had in Q4, which reflects a more cautious approach to investing in the new games. However, we still believe this is at healthy absolute levels. On a year-on-year basis, our decline in total marketing spend was mainly driven by InnoGames because they had this extraordinary high spend level in Q1 2022, where they were coming out of elevated COVID levels, but also were just in the early life cycle of scaling new games, which we're not doing to the same level anymore.
We are happy to see the improved marketing environment as we generally want to increase marketing spend at the lower thresholds that we are working with. The strong investment levels we see today create comfort for future revenues and profitability and also the outlook that we are presenting today. Of course, we are cautious that this is only one and a half months of observations in the quarter, we still believe that the market is improving when it comes to marketing spend. Looking at our ability to convert profits into cash, we delivered another quarter in line with our long-term guidance. Cash conversion ended up at 51% in a quarter where we had high marketing spend, which typically impacts margins and bonus payments in headquarter, impacting net working capital in Q1, as it also did last year.
The latter was somehow helped by a partial reversion of the payment terms to marketing partners in PlaySimple and interest rate gains at group level on our cash deposits. We also had a small negative net working capital contribution in InnoGames due to payment timing that will be reversed in Q2. We made the final cash earn-out payment in the quarter to Ninja Kiwi, which reduced our earn-out liabilities with SEK 463 million . We have also done a smaller update to our earn-out liabilities in the quarter, which increased the liabilities with approximately SEK 100 million . This is very much due to the strong continuous performance that we're seeing in PlaySimple. Remember now the earn-out liability is only related to PlaySimple and Hutch.
We had end-of-period total discounted earn-out liabilities of approximately SEK 2.4 billion. Our end-of-period cash position equal just around SEK 4 billion versus SEK 4.7 billion end of last quarter. The earn-out payments, the share buyback program, and the payment to PlaySimple related to the minority shares explains this development. With that, I'll hand it back to Maria, who will take you through the outlook.
Thank you, Lasse. We are really encouraged by the group's overall positive momentum. It's good to see the early indications that the mid-core marketing environment is showing signs of improvements as we discussed. We are even more excited about the strong performance of our Word Games. The fact that Ninja Kiwi continues to showcase what a strong evergreen IP can do to create long-term growth, and then the new games pipeline in Hutch, that is truly exciting. We also have an ambitious plan above and beyond this to continue to scale the Flow platform. When you take it all together, of course, we have, as always, a lot of work to do. Overall, we feel that we really are on a positive trajectory after a tougher ending of last year and a slow start of this year.
Visibility, as we know, is far from perfect, but we do feel that the group's performance in the quarter, combined with the early market signals, brings us comfort to our guidance. The outlook that we're therefore setting for us and for the full year is to be within a -3% to 2% range when adjusted for currency effects. This is implying that we do expect to return to growth in the second half of this year. We also do expect that our adjusted EBITDA margin for the full year to be within our long-term outlook of 23%-25%. When looking to the market, we do expect our overall market to decline by low single digits for the full year, but for the overall market dynamics also to become more favorable towards the second half of the year in the outlook.
When it comes to the longer-term outlook, that remains unchanged. We do feel that we have a strong portfolio of evergreen IPs and fantastic studios and game makers. We have a clear strategy in place to build up our Flow platform as a common layer to help our game companies to accelerate and our industry supported in general by positive long-term demographics, technological, and social trends. We also have a strong balance sheet, as Lasse just pointed out, to support future M&A ambitions, which then will help us grow our relevant scale. With that, I thank you for listening in today, and that's all from Lasse and myself. Anton, let's move over to questions.
Thank you, Lasse and Maria. We are now ready to take questions, both online and via the operator. Operator, please go ahead with the questions from our guests via the phone.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Simon Jönsson from ABG. Please go ahead.
Good morning, Maria, Lasse, and Anton. A couple of questions from me. First, on your growth guidance, -3% to +2%, what assumptions are behind the different scenarios here? For example, what is needed to reach the top of the range, how much would you say is contingent on not yet released games?
Yeah, I can start and then Lasse can pitch in. When it comes to, you know, we have now pretty good visibility on the year. We know how the year started, we know how the first events went. We also know how we're scaling new games in PlaySimple, most importantly. So the guidance isn't really contingent on new games to be launched, but it is contingent on that the events that we have both on live ops on the more established games, but equally important on the new games PlaySimple launch, that they will continue to scale up. That's also why you provide a range.
We can have ambitions, and we can believe that we will have a perfect execution, as you know, not everything always goes to plan, so that's why we provide a range. To be in the upper end, we need to have a strong performance on all these things, and you need to continue to see a strong scaling up on the new games that PlaySimple are having. There are some smaller deals that we also have in the execution pipeline in different companies that needs to come through. If all those things, and all stars are aligned, we should be in the upper end of the guidance. If something's not scaled all the way, then we'll be in the lower end of it.
If marketing starts becoming significantly different than what we're seeing now, it's also reflected in the lower end of it, yeah.
Yeah. There's no new games to be launched. I know we're talking about the Hutch games. That is something that truly excites us, but it probably excites us more for 2024 than it does to 2023. It is important for us to from a sort of a comfort level to get them out, at least one of them this year. From a financial point of view, it's not gonna move that needle that much this year. It's rather gonna be in 2024.
All right. Thank you. On the same topic, on the fact that you expect positive growth from second half, should we view that as you expect to grow from Q3, or is it more overall in H2?
I think it's very much due to the comparison numbers last year, right, Simon? Because as you also know, the incentive payment in PlaySimple was booked in the first, second and third quarter. Hence that basically just means it's very difficult to grow year-over-year those versus Q4. On the line without that, the growth profile looks different and hence we're returning to growth quicker than that. With that, it's probably more, you could say around what you're indicating there, i.e., that it's stronger in Q4. Definitely for first half Q3, definitely underlying with the bonus, probably just around that.
All right, thank you. Also on turning to UA, on the better effectiveness, would you say that or should we interpret it as you aim to end up at the high end of the range of the UAC, the sales that you have in your guidance, in the coming quarters? Or would you say that you're still not comfortable enough to be that aggressive, so to say?
I think we're not updating our guidance on UA spend as a % of revenue, but do believe it still represents the expected outcomes. Remember, Q1 is always seasonally higher than the coming quarters when it comes to spend. Even though we've had a strong Q1, it's not the same as just assuming that then you have automatically the same. However, we do believe that we will have a strong, you could say, marketing year in general, and that's of course also driven by the fact that PlaySimple continues to grow faster than the rest of the portfolio. As you know, PlaySimple is spending more marketing as a percent of revenue than the rest, so they do pull up the average and hence contributes in that direction.
You would not say that you're aggressive?
I think, while in the previous quarters we couldn't be where we wanted to be, i.e., the plan, I think now we're probably more where we want to be. I wouldn't say yet that we've come to the place of saying now we are actually aggressively scaling marketing.
All right, thank you. The last one from me. How big do you think the one-off cost in the years will be next quarter for the layoffs?
The total costs is estimated to be around EUR 3 million. As you know, this is a negotiation with the individual employee in terms of which kind of package that they choose, et cetera, and that's why it's an estimate. It could also be that some of it flows slightly into Q3, so all of it is not booked in Q2, but for now, we would estimate majority of it to come in Q2. It's something that we'll be adjusting for as a one-off cost in our adjusted EBITDA, but of course it does hit the net in common cash flow for the second quarter.
All right, thanks. I'll get back into the queue. Thank you.
The next question comes from Dennis Berggren from Carnegie. Please go ahead.
Good afternoon, Maria, Lasse, and Anton. Given the improving marketing environment that you saw towards the end of the quarter, should we still sort of expect UA, I think you partly mentioned this recently, Lasse, but should we expect UA to remain above the levels that we saw in Q3, Q2 and Q3 last year, given the momentum that you see in PlaySimple? Also a follow-up on the marketing environment. I mean, why do you think that the environment is improving? What are the driving forces behind that? Could you perhaps also add some comments around the sort of trend in UA spend during the quarter? By what magnitude did it change between, like, January and March?
Yeah. I think it's fair to say it wasn't like a groundbreaking step up that we spent 25% in half and 75% in the other half. We did see that the spend was more profitable. Remember, when we are talking about our ability to scale better is a function of both the conversions we're seeing, but also the early retentions and the cost for actually acquiring them, i.e. the per click. Here we could see that we could actually put more marketing into the funnel without jeopardizing the ROAS, and that was what made us able to scale it. What's the underlying driver of that, I think is still difficult for us to fully assess. Yes, we are getting better and better at working around the IDFA regulation, optimizing the right channels.
It also looks like something happened in the marketing environment which relates to cost and also consumer behavior. Again, we have one and a half, two months of observations on that, and it's too early for us to still fully conclude where did it come from, is it persistent for the full year, et cetera. Of course, that's also why we are choosing to be a bit transparent on not just talking about a blend in the quarter, but actually that we saw different dynamics leaving the quarter. I'll let Maria add to that just after your detailed question on UA spend. Your question on whether Q2 and Q3 last year is representative for the quarters this year. I think as you also well know, we don't guide per quarter when it comes to UA spend.
Remember, if you compare with the absolute levels, then. Oh, sorry. The, I think relative levels are better comparison than the absolute, because again, the revenue has also become smaller since, given the year-over-year we are seeing. Relative levels were fairly low in Q2 and Q3 last year, around the 34%-35%. Given also that PlaySimple in relation to the others has grown since, and that we are seeing fairly favorable markets, which we definitely did not see in Q2 and Q3, I think we are optimistic on our ability to scale better than we did in those quarters, again, as a percentage of revenue.
Yeah.
Over to you, Todd.
No, I think the last covered most. I think the one thing to add as well is one thing is a market where we are seeing sort of early signs of improvements, and again, it's too early to say that that's gonna proceed for the rest of the year. I think the one thing you always should feel comfortable with is for us to have the right ROAS levels is truly important. That's why we do scale up when we see the opportunities and when we see that the ROAS aren't where we would need them to be, we actually do not spend that increment, the dollar. Also our own internal performance improved in the second half of the quarter, especially in the mid-core segment, which of course also helped us to be able to scale marketing a little bit more.
I mean, that's basically the two things that always needs to work in tandem, both the cost per install and then also the lifetime value expectation of the customers. I think that's where at least we feel that we are in a good and better place going out of this quarter than going into the quarter.
Got it. Just a quick follow-up on strategy and simulation. I mean, how much of the improvements that we see, it's been driven by game-specific events like in Forge, for example, that you mentioned, versus like improvement of our market conditions, specifically in our platform. Is that right?
Yeah. No, as you know, it's really difficult to depict exactly what is what. We saw those two things work in tandem. I think what the team in general, you know, has been working on is to really elevate the sort of the events, because they are important for us, they're important for our customers, they truly enjoy them. I think when we look at our execution of the February and March event, we normally have 1 big event per month. They were much better and much more interesting to the customers because that's what makes them meaningful and relevant.
At the same time also, if you look at the sort of global in-app purchase market data, and especially North America and Europe, which is our addressable markets, I mean, March came out much stronger than what January did. Of course, those things, they worked hand in hand, if I can put it that ways. What we are excited about is also our own improved performance. Now we need to make sure we keep that level as we move forward.
Okay. Finally, just to check on the cost base and your thoughts on the margin development, because just a question there. If the reduced cost base, is that entirely related to the changes that you're making in InnoGames now? Or is it something else as well?
You're asking whether the lower Q1 margin we have versus our full- year outlook is basically related to all the improvements we're gonna drive, is related to InnoGames only or other things. Is that correctly understood, Hans?
Yeah. Yeah. I think you mentioned like three drivers for expanding margins throughout the year.
got it. Yeah. Yeah.
One of them being, a reduced cost base.
No, it is, it's not only InnoGames, right? Basically, yes, the cost reductions that we have done in InnoGames will of course help improve the margins. It's not a full year effect, but should have full quarter effect from Q3 and onwards. As you also well know, given that we expect revenues to increase sequentially every quarter from here on, that'll also have a positive margin contribution if cost doesn't. Given that we do have a, I would almost say different approach to cost development right now than probably two or three years ago, because the visibility is different in the market than again it was two, three years ago. We believe growth in general right now is actually margin and expansive.
Got it. Thank you very much.
The next question comes from Rasmus Engberg from SHB. Please go ahead.
Hi, good afternoon. I wanted to ask you, When we look at the trend now, if you exclude the platform deal, how, are we very close to growth already excluding the platform deal now? Or where do we stand right now?
Hi, Rasmus. I mean, as I said, previously in the presentation, there's really a quarter of two stories. InnoGames did have a quite significant year-over-year decline, which is hampering, given the sheer size of InnoGames, it's sort of hampering the overall group sales quite a bit. If you look at in sort of PlaySimple isolated, it is growing both year-over-year, and it's growing sequentially if you exclude the platform bonus. Then we also say that Ninja Kiwi is growing. Excluding the platform bonus, I mean, you can argue three out of the five companies on a really good growth trajectory. InnoGames, that's where we feel good that we feel that we are reaching sort of the plateau and seeing clear signs of stabilization.
The team has a good plan in place where they want to come back to growth and innovation. That's why we're quite excited, even though the reorganization is difficult. It always is. I think it's really important for the company to re-energize the organization and drive innovation so that also InnoGames can come back to growth. That's not gonna happen next quarter, but we do, and we hope they will see that we've seen sort of revenues coming down and now stabilizing. We're working then hard to also bring that asset back to growth.
Maybe just to add some nuances on again, what happened throughout the quarter, because if you look at especially InnoGames and go back last year, January was significantly higher than February, and February was higher than March because of how we came out of COVID. You well remember that, I don't want to say ended because it didn't, but the whole effect started tampering off towards the end of the year, and that meant the elevated revenue levels was really there. Also the new games free promotion that they got on iPad, sorry, on Apple, which also boosted revenue, was also to the beginning of the quarter. Now looking at what's actually InnoGames is year-over-year growth.
One thing is per the quarter, as Maria just mentioned, that also became, say, a mixed story because if you look within the quarter, they left the month or the quarter significantly better on a year-over-year basis than they began it due to this last year's effect, not because that their revenue grew dramatically. It was better at the end, it was actually more driven by the historics. To your question, Rasmus, if you were to looking at the very recent end of it, adjusting as you asked in terms of the bonus, et cetera, at a group level, we would be very close, probably not all the way there yet due, as Maria mentioned, in terms of the different companies. I think that's how you should think about the underlying trends in InnoGames.
Then, just on InnoGames, how much do you anticipate to save there? I know you'll probably reinvest some of it, but maybe
Yeah, we actually haven't chosen to announce that. I would say you should have the building blocks of coming with a good estimate, given that, you know, over 75 colleagues that we had to let go, and we published the salary bands for all InnoGames developers.
Mm-hmm
... a little bit less than a year ago. Then, of course, there's a little bit of German Social Security cost and all the indirect cost.
Mm-hmm
I think you'll get very close to a good estimate using that.
Right. Very good. Then just finally on the quarter, I think, in constant or rather in reported currency, PlaySimple was up, I think, 20% if we exclude the platform deal. Was that Did PlaySimple have any sort of trend, or was that pretty much stable? It was a growth throughout the quarter, or did they also experience a better second half or worse even?
I would say in general, PlaySimple had a very good quarter all the way through. I think that the one thing they sort of sequentially did very good is, of course, scaling up the new games, 'cause each month is important when you scale new games. I think that is where they saw the incremental sequential growth on a sort of month-by-month basis. Overall, we are really excited about how that franchise developed. The one thing that was, at least for us, uncertain going into the year was the CPM developments. I mean, as you know, normally Q4 is seen some of the strongest quarter. This year in Q4, we didn't really see the uplift in Q4 that we normally see. Going into Q1, we didn't see the drop either that you normally see.
I think that was something positive. Then, of course, the team is really working with when it comes to live ops and the events in a really good way that drives engagement of the customers. That, of course, further adds to our revenues. I think they had overall a very strong quarter.
All right, thanks. I'll get back in line.
The next question comes from Thomas Singlehurst from Citi. Please go ahead.
Hi. Hi there. Tom here from Citi. Thanks for the presentation and thanks for taking the questions. I have two relatively higher level questions, if that's okay. One, in previous sessions, you've talked about Bloons TD 6 being distributed on Netflix. I was wondering whether you could give an update on that and whether there's any scope for sort of more licensing and distribution deals like that. I suppose the point being, I know it was just something slightly different, but, you know, you did have a platform bonus last year. I'm just wondering whether there were, you know, scopes along the way for sort of chunks of one-off money to come into focus. That was the first question.
The second question, I'm just wondering whether you could generically talk about the impact of generative AI, as you know, I presume a sort of productivity tool for the business, either in terms of generating content or managing customer support, any insights on the sort of threats and opportunities around that?
Generative AI would be very much appreciated. Thank you.
Yep. Thank you, Tom. I'll start. When it comes to sort of I think it's quite interesting to see that you're getting more and more platform actually being relevant for us, that's when you see when you have strong IPs like Bloons TD 6, it is truly sort of a title that is being highly sought after. The Netflix deal is done, and we will get on the platform, so it's more about the timing on when it's gonna go live. That is something we look forward to. As I also talked about, not only have we been truly successful on Arcade, but we're also gonna go into the Xbox and PlayStation later this year.
That just shows how you can work with sort of different platforms, making sure that you get the game out to broader audience and bringing excitement to the customers. And that goes out. I mean, it's not just Ninja Kiwi that are talking to these platforms. There are more companies in our portfolio that are discussing different opportunities and of course, those are some of the deals that we're hoping to be able to close and then be able to come back to you throughout the year. When it comes to sort of the platform bonus, that is actually quite something different. I mean, that was more about how we work with our inventory.
That was a quite unique situation also when we changed the platform last year about the sort of end of Q1 that was driving that. If we would get something similar this year, I sort of would not expect that. You may do smaller deals in a smart way to make sure that we optimize how we work with our inventory and how we work with our partners. I mean, that's just part of doing business as such. I think that what I find exciting is that we're actually seeing more available platforms when it comes to getting our games out to customers, and that is something that I think we should draw the benefit of in making sure that our games simply get more broadly available to the customers.
When it comes to your other question, I think AI is something that everyone is talking about, and I think last year it was all about Web3, and this year it's all about AI. Of course, I mean, the power of AI, I mean, is difficult to dispute. I mean, it is sort of simply amazing what I can do when it comes to graphic with CRM, with events, with games creation even. I think that there is, of course, an amazing opportunity. I think there's also a gray zone to understand how can you actually utilize it, who has the sort of IP rights of it. I think that we are still very early days to understand how to actually utilize it, and also remembering that people is our biggest asset.
I think that is a sort of an important balancing act to have, and I think we are getting our heads around to understand how, where, and when should we actually utilize AI in what we do and where does it make sense. I think that it's clearly a powerful tool, and I think that all of us gonna have to figure out how do we work with it in a sustainable way.
That's great. Thank you.
The next question comes from Simon Jönsson from ABG. Please go ahead.
Hi. A follow-up from me on the, on the CPM levels. You said that you did not see a drop in Q1, it seems like, you know, the overall online ad market was down quite significantly. Do you share that view, first of all, and was there anything company-specific to PlaySimple behind you maintaining high levels?
Yeah. No, I think that we've probably been looking at the same data source as you when you look at the overall global CPM levels, and I think they were down around 20-25% or something year-over-year. When we speak to other players in the industry, I don't think that anyone has seen that same drop on the gaming-related part, and nor have we seen in PlaySimple. I would love to say that it's only us that's done a great job, but I think that also in general, on the, on the sort of gaming CPM levels, there's been actually not that development.
I think that our team within PlaySimple are doing an amazing job optimizing always the inventory, which also makes a meaningful difference, and also making sure that we keep the customers engaged longer within the games, which also makes us able to monetize eyeballs during a longer period of time, and that also plays an effect in our over revenues. I think that is something that we are doing on our behalf. On a good note, the gaming eCPM levels as far as, I mean, there's no perfect data source, but based on our intel, the market didn't see that significant decline.
I think, Simon, just to add, if you also go back to our long-term strategy in capital markets day when we talked about our expectations for the future when it comes to in-app advertising and revenue source from that, we are fairly bullish on it because today advertisement on mobile games represents a less than 5% of total digital, and we believe that that share is gonna grow. It looks like else, at least my math doesn't work, that they must have taken or mobile gaming as a advertisement platform has taken quite a lot of market share in Q1, and hence, that shows how robust that part is.
Of course, when hopefully digital spend in general gets back to growth and gaming continues to take market share, then we're going to get back to those previous high 15%-20% yearly CAGR in that part of the market, right? We are not at yet or at right now, but at least one can see how it's possible to getting there based on the market share gains.
Yeah. Right. Basically more money flowing into the mobile ad system, I guess.
Yeah. Away from other digital sources.
Do you have any thoughts on why that is?
I think it's still a under-penetrated advertisement platform for many. If you look at who's advertising in games, it's very much other games because many other advertisers hasn't really started to get into that yet. Many has waited until scale started to be there because you need to have different formats to work on it. One could be optimistic to say that that is starting to happen. Hence demand moving from traditional digital channels to games here is starting to come from larger players as well.
All right. possibly mainly, money flowing from other kind of marketing, sectors marketing in mobile, I guess.
Digital generally, right.
All right. Thank you. That's all for me.
There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
We have no further questions digitally either. With that, I would like to thank Maria and Lasse for today. Thank you everyone for listening in, and we will see you soon.