Thank you, operator, and good afternoon, everyone. And welcome to MTG's Interim Report Presentation for the Q3 of 2020. As stated, my name is Oliver Carra, and I'm responsible for media relations at MTG. And I'll be moderating today's call and later on our Q and A on the financial results. MTG's President and CEO, Maria Reddin and CFO, Lars Thorstensson, are with us on today's call to present the quarter and take your questions.
As usual, we'll start with the presentation followed by the Q and A. Please keep in mind, as stated, that the only dial in participants can ask questions. That concludes the introduction. Over to you, Marita.
Thank you, Oliver, and welcome to everyone joining our conference call. I'm pleased to present the strong set of numbers in my Q1 as the new President and CEO of MTG. I look forward to taking your questions later, but first, let's dive into the presentation. The Q1 saw strong results and record high profits from the gaming vertical and our group. Our net sales in the quarter amounted to SEK 912,000,000 and an adjusted EBITDA of SEK 196,000,000 dollars with a record adjusted EBITDA margin of 22%.
Innogen continues to impress with a strong performance driven primarily by Port of Empire and saw a strong growth in both its mobile and browser sales in the quarter. Congate, on the other hand, did not deliver growth top line as we would have liked to see, this largely due to the discontinuation of 2 publisher titles last year. Though we're very excited to have seen them launch Teenage Mutant Ninja Turtles' News and Madness game successfully in September. In September, we also announced the combination of ESL and Dream Act to create a combined entity, ESL Gaming. While we continue to operate both brands, we believe that this is an important step to take our esports vertical to the next level.
We also continue to successfully seal significant media rights deals in the quarter, further expanding our reach with strong partners in important markets such as Brazil and China, and we continue to provide relevant entertainment to the Esports community online despite the extraordinary circumstances from the pandemic affecting live audience events. Now let me elaborate on our Eastwood vertical performance in a little bit more detail. To mitigate the risk and to give the best chances for our massive property to host studio events with the team present, we decided to push several events from Q3 into Q4 in early 2021. Although the intention to reduce activity meant lower revenues in the quarter, we substantially offset this by tightening the cost structure. Overall in the quarter declined 35% and we continue to see decline in sponsorship, but the new media rights deal signed earlier in the year drove growth in media rights and changed also the revenue mix in the quarter.
ESL successfully hosted 2 multi property events as online productions, ESL 1 Colon and ESL 1 Thailand. ESL 1 Colon was moved to a studio to a closed studio environment and saw teams compete across the world in 4 regional tournaments. The event was successful and set new standards in terms of production and broadcast quality, and ESL 1 was completed also in an online format across 2 regions, the Americas and Asia. Dreamhack and Dreamhack Sport Games held no launch events in the quarter, but a range of series of small challenge events per CS:GO, and they also gained pains in the latter part of the quarter from a strong lineup of ESS events. Sound engagement has successfully been maintained in the quarter with our watch significantly increasing for both our market properties.
Further, in October, ESL Pro League reported new viewership records across all the metrics, including a new offline high of more than 1,000,000 peak concurrent viewers, making it the most watched online mash of CS:GO in history. We see mobile esports as a key growth area going forward. In Q3, DSL Gaming announced the return of ESL Mobile Open and the extension of the format to include all the countries from MENA region to compete alongside Europe. The 2019 competition attracted more than 500,000 a final with a final schedule now in November. ESL declined by in total 57% in the quarter, largely as a result of partnering the counseling, postponing or downscaling events and activations.
We've then partnered with key stakeholders such as PUBG MOBILE, Fortnite, Rocket League, Clash of Clans and the Nordic League of Legends. We continue to secure several new media partners, such as Duy and Huy and Global Omelette, extending our reach for our Esports content in more languages and see more markets worldwide. Halfway through Q4, we're seeing strong execution of several events. We have the ESL Pro League and IAM New York, both successfully held in October. ESL 1 Germany finished now in November.
And we now look forward to IAM Beijing and IAM Global Challenge rounding off a very busy quarter. While we look forward to being able to host live audience events again, we're proud of how our portfolio companies have adapted to the new circumstances. It's fair to say there's still a lot of potential for improvement in how we produce and distribute our e sports content when produced online, but we're actively innovating every day using the latest technology to create the best possible digital remote experiences for our fans. And the work we're putting now will also benefit the way we produce and distribute digital esports content also when the pandemic is long gone. Last but not least, we also wanted to briefly touch upon the combination of ESL and Dream Act, which was announced in late September and is expected to be finalized in Q4.
The new ESL gaming entity brings the best people globally in esports together and can be more successful in accelerating products and events innovation, more efficient in operation and has the potential to further stand out in offering the widest product portfolio towards media partners, brand sponsors and games publishers. The combination is also important step to Siemens our leading position in Esports and Gaming Lifestyle and an important milestone in our ownership in both brands. It's important to underline that we will continue to operate and develop both brands, but a combined entity is adapted for scalability while also creating new opportunities for synergies. So if we then move over to our gaming vertical. The 3rd quarter was particularly strong for our gaming vertical, where in game performance stood out, mainly driven by Forge of Empires.
While Concrete had underlying growth, its results with naturally still heavily affected by the loss of the publishing deal with HyperHipp both for AdCom and AdCap. While we have invested in the move to mobile for in the games and been happy to see a steady growth in the mobile platform, this quarter we can also see that browsers down through a significant portion of growth, adding 25%. And in game's most experienced title, Tribal Wars, made its return to the top 3 game charts, and this is a display of the company's talent to boost longevity in its successful titles. Turning to the gaming KPIs. We recorded just another quarter of high growth in our ARPDAU, which grew by 23% versus last year and also to continue this growth trajectory on a sequential basis.
This is a testament to the popularity of our top games and shows the scalability and predictability of our core games assets. It's important to note that while overall MAU and DAO declined year over year, this was mainly driven by the loss of these 2 third party titles in Kongregate. On the other hand, Innogame grew its daily active users in the quarter, while the monthly active declined somewhat and in line with our anticipation. The Q3 results we presented today is built on the foundation of strong gain and we can see the clear benefits on the increased user acquisition spend in Q2. Our play base today more active, more engaged and spends more in the games than before the pandemic impact.
This gives us and the portfolio companies that we work with the confidence to move ahead. If we then look at new games pipeline development that is also progressing according to plan. In the games, there's 4 new games in development, 2 of which we have already shown very strong results in retention tests, and we're optimistic about launching at least 2 of these games in H1 2021. We further anticipate that this will drive both increased revenues, but also an increase in marketing spend. The first type that is scheduled for launch is in Q1 and that is an exciting new IP in the city builder segment.
With that said, then I hand over to you, Lars, to walk us through the financials.
Thanks, Maria. As has already been touched upon, we delivered a solid set of results and record profit in our gaming vertical in the quarter. Additionally, our Esports verticals demonstrated good cost control and a more favorable revenue mix, outperforming earlier providing guidance. With that said, let me go through the P and L in some detail. Since the Eastport Vertical had a light event scheduled with few master properties, the underlying net sales were down by 9%.
However, the Gaming vertical grew underlying net sales by a solid 12%, driven by high engagement among gamers and successful in games events throughout the quarter. Adjusted EBITDA increased by more than 5 times year over year with improved performance in both verticals combined with lower operational and central costs. This was partly thanks to higher sales and a more normalized marketing levels at Dino Games and partly due to the Esports verticals adjusted EBITDA improved significantly versus last year, thanks to more efficient operations on the back of online events. Looking further into the reduced losses in e sports, we delivered slightly better on our savings target with approximately SEK 200,000,000 in lower cost in the quarter, primarily through additional COGS savings as we fine tune the online format for our tournaments. We continue to improve our understanding for what good looks like.
And gazing into the future, we have a lot of learnings to bring with us into a more normalized environment. I would also like to reemphasize that we do expect the COGS savings to continue as long as we run events online or in studio formats. Additionally, through the merger of ESM and Dreamhack, we will not just be creating the largest e sport asset out there, but also the most efficient. Short term fixed cost savings are conservatively calculated at approximately SEK 50,000,000 for 2021. But we believe that there are more long term efficiencies to aim for as the 2 organizations are further integrated and we return to live audience events.
The financial performance in the quarter was further positively impacted by the growth of media rights, providing a more favorable revenue mix. The EBITDA adjustments in the quarter amounted to negative SEK 72,000,000 to be compared to minus SEK 36,000,000 last year. And some of you might have noticed that the cost for management incentive program again was elevated. Yet again, this is following the very strong results we see in the gaming vertical in general and in new games in particular. Strong engagement in the form of higher ARPDAU levels has led to new records and as a result higher payments for incentive programs in the gaming vertical.
Depreciation and amortization were in line with last year, reflecting higher depreciations within the Gaming segment as we both launched and acquired new games, which we are depreciating on the back up, partly offset by lower depreciations in eSports and the amortization on purchase price allocations, which was slightly down in the quarter. Net financial items were adverse in the quarter, predominantly driven by exchange rate changes and mostly unrealized. One should remember that we have our cash balance held in euros. And given the recent and slight strengthening of the Swedish krona, we do see a negative impact this quarter. Finally, the group tax was minus SEK 59,000,000, predominantly reflecting the increased result in the Gaming Vertigo and Inu Games.
So let's move on to the cash flow statement. On the back of the strong financial performance, the group reported an improved net cash flow from operations of SEK 135,000,000 driven by Innogames, but also thanks to maintaining good cost control in the e sports vertical. The working capital change of SEK 2,000,000 in the 3rd quarter was predominantly driven by the gaming vertical, which had a high outflow of payables. Additionally, payment patterns towards major platforms provided such as Apple and Google had a negative impact on working capital change. CapEx was lower in the quarter compared to last year, which was mainly driven by Kongregate's acquisition of 3 yet to be revealed IPs.
In the quarter, Kongregate successfully launched Teenage Mutant Ninja Turtles. Hence, there are now 5 remaining games in development within both InnoGames and Kongregate. And we did also invest in studio build up and B2C platforms development at ESL. All in all, the group did have a total net positive change in cash in the quarter, not a lot, but still positive. As a result, the group remains well funded with a net cash position of SEK 1,600,000,000 as of the Q3 2020.
Gaming continues to be a cash flow contributing entity, and we are working hard with the eSport vertical to optimize the current cost structure, especially in the light of the ES7 and REMAX merger to take strides towards a positive adjusted EBITA contribution from the vertical. Let's move on to the updated and upgraded financial guidance. As we have concluded, the operational development has been stronger than we expected when we provided our early guidance for the second half twenty twenty. As a result, we have upgraded our new outlook to reflect that improvement. The important changes are the following.
Revenue in the Eastwood vertical is expected to decline by approximately 27% to 32%, and we previously assumed minus 30% to minus 40% in the second half of twenty twenty compared to the second half of twenty nineteen. ESL and Dream App will continue to reduce both cost of goods and services sold and fixed costs. These things will be at least SEK 325,000,000 which is no change from our earlier guidance. Group adjusted EBITDA for the second half twenty twenty is expected to amount to between SEK 375,000,000 and SEK 400,000,000, And that should be compared to our earlier guidance of SEK 250,000,000 to SEK 300,000,000. And this is on the back of continued strong user engagement and successful in game events in the gaming vertical.
That concludes my final financial review. And any questions you might have, I would be happy to answer as part of the Q and A. Back to you, Maria.
Thank you, Lars. To summarize on the Q3, we're proud to be able to present reports with another record set result for the group and for our gaming verticals, one that is on the result of a very strong underlying momentum development built over time and a team effort. We're seeing growth not only on the mobile platform but also on the browser. And our new game development pipeline is progressing in 20 percent, and we plan to launch of 2 new promising titles in the first half of twenty twenty one, of which the first will be already in Q1. Our e sports vertical has proven that we can produce and distribute world class digital only e sports content that is lucrative with fans and viewers to consume as it is for partners to invest in, and we have successfully continued to sell media rights to our products.
We consciously rescheduled several months property Q4, which is therefore a very packed and busy quarter. We pushed our vertical strategy to further convert our 2 strong portfolio companies, combine them into 1 entity with 2 strong brands. All the while, we have held successful digital most property events and continuously innovate and improve the way that we produce and distribute digital OMA Esports, ensuring that we keep the show live and our audiences engaged. We have completed our strategic review process with MPG intending to retain and further develop the value of both of these sports and gaming verticals. We aim to do this both organically and through acquisitions.
We will revisit the idea of splitting the company into 2 only after we create the step value for both verticals. These push events will be held digitally or online for the remainder of 2020. And what 2021 looks for remains to be seen. While we want to reintroduce live events again, we're confident that the show can go on regardless. The record setting gaming vertical performance and the continued resilience of our Esports vertical has allowed us to upgrade our guidance for the second half twenty twenty to reflect the stronger than anticipated performance from both verticals.
Our established games continue to perform very well, driving engagement within our play base and our new games pipeline is looking stronger than ever. I look forward to update you on the progress from what we will see will be a very intense Q4. That concludes our formal presentation of our Q3 interim report. So over to you, Oliver.
Thank you, Maria. We are now ready to take any questions that you might have on the interim report or the conference call presentation. Operator, can we please have the first question?
Then? Our first question is from the line of Martin Al Maou from DNB Markets. Thank you. Please ask your question.
Hello, everyone.
Hi, Marcin.
So my first question is on esports and what was the main reason for the raised outlook there for the second half?
So thank you, Martin. We have a question from Martin at BNB on the main reasons for the raised expectation in this in the market for esports.
Yes. No, I think, hi Martin, by the way. The initial guidance was between 30% 40% decline and now we tightened and lowered it a little bit. So we're now seeing 27% to 32%. And it is that we are seeing a strong underlying revenue momentum that what we initially saw as we closed Q2.
So we're very happy about that. But the underlying trend still remains when you see the brand sponsorship is declining, but we see a very strong media trend, both when it comes to reach and getting many more media partners on board that also value.
And just building on that, Martin, as well as we mentioned in our presentation, we are getting a better and better understanding of running online and studio events as well, meaning that we can also packetize that product in a better way. That means that the entertainment that we are now providing is improving and that is also reflected in guidance.
Okay. Great. And is so I guess it's a lot about you adopting to online in this problematic environment. That's fair to assume, right?
Yes, but it's a combination of that and also getting more clarity. I think that every day we're getting better to large points and also we are getting better visibility. We can also have a better communication with our partners. So it's a combination of several things. But I think that where we stand today is a much stronger position even though it's a turbulent world around us compared to both 3 6 months ago.
Yes. And if we look into 2021 and given where we are now with the pandemic, and I guess it's fair to assume that you will not be able to have fiscal events early next year? Or I mean, it's how do you view the 2021 outlook given what you know today?
I think based on what we know today, it's too early to assume anything. So I think that we are planning parallel worlds. As you may have seen, we have already announced the ESL Pro Tour Counter Strike Schedule. So you have the date set for next year. We would like to be able to hold live events on back of those events, but the fact is that none of us know.
So we need to plan accordingly, which is the same thing that we actually done now for the last 6 months. And I think that we are getting better and better also having this parallel world where we're actually living in an uncertainty when we can start to introduce both studio events at the first instance and then eventually live events.
Thank you, Martin. I think we'll have to go to the next question.
Yes. But before that, I would just like to remind the participants who would like to ask questions. So our next question is from the line of Upte Ericsson. Thank you. Please ask your question.
Thank you. Oskar here from Carnegie. Few questions from me, starting in the gaming segment. On the margin side, I mean, fantastic margin now in Q3. What is what are the dynamics behind this very strong margin?
I suspect much lower marketing. Also what is reasonable to expect now in Q4 and also 2021 given the new game launches that is expected next year? Thank you.
Thank you. Oskar of Carnegie. We had a question on the gaming side. What has been the dynamics behind the margin? And what our expectations are for the coming quarter and longer down the road in 2021.
I think this is a question for Maria to answer.
Yes. Hi, Oscar. No, it was an exceptionally strong margin that we saw in the quarter, which is we, of course, extremely happy about, but we don't believe that there is a sustainable run rate margin going forward. The dynamics was a 2 fold. I mean underlying, we as you recall, we had a very high user engagement in Q2 and had a very strong both uplift of new customers, but also reengagement of old customers.
We were anticipating that to normalize in Q3, which we have seen, but we've still seen it normalize at a much higher engagement levels than what we've seen pre the COVID-nineteen outbreak. And that is something that we've been enjoying throughout the quarter and that we did not anticipate in full before the quarter started. At the same time, we are also compared to I mean, we invested quite a lot in marketing in Q2. We reap the benefits of that in Q3, and you should expect the benefit continue also going forward given the longevity of the cohorts within Innogyne. So of course, that also positively benefited the quarter, whilst the underlying marketing effect was more normalized year over year.
And when I say that, it's important to remember also that we last year actually did invest quite a bit of marketing also in the new games that we subsequently went into phasing out mode of. So on back of our core games, we still continue to invest, but the total marketing is actually year down year over year. Okay. And then your second question, sorry. Next year, yes, you should expect marketing to go up.
We're very happy to see the games pipeline that we have. As I said, we had 2 games in retention tests already with very strong results and we have another 2 games going into retention test now in Q4. So we're confident that we're going to have 2 new games releases in next year, H1, and that will, of course, come on back of increased marketing efforts but also then sales.
And just as a friendly reminder, Oskar, I know you're well aware of this one, but we are expecting these games to land in a good way after being launched. And there is a strong correlation, of course, between higher marketing spend and successful games just to bring that on board as you think about 2021.
Yes. And to add one more comment as well, so we can have it all there. The InnoGames games, because there is 2 InnoGames that we will launch in the first half. I mean, they as we all stated, it's not profitable in year 1 when you do the marketing. It's a little bit different when you launch a casual game, but the mid core game is not profitable until year 2 and by COVID-nineteen, new game launches and marketing.
Thank you, Marian Lars. Operator, I think we are ready for a follow-up next question.
Yes, sir. It's from the line of Tom Singlehurst from Citi. Thank you. Please ask your question.
Hey, Maria. Hey, Lars. Thank you for taking the question. It's Tom here from Citi in London. I was going to ask about eSports.
I mean, obviously, your attendee revenues, your sort of pure live events revenues are minus 100%. So that's clear. But just to try and make the numbers maybe a little bit clearer for the media part or the media related revenue. So anything that you generate from either sort of right sales or advertising. I mean, can you give us a sense of what the growth is in that revenue line year on year?
Just so we have a rough idea of the progress you are making in sort of transitioning the or sort of developing the sort of the media revenue streams, if that's the right way of putting it. So that was the first question. The second question was actually on the sort of marketing spend gains. I suppose reading between the lines, the fact that you didn't carry on the same level of spend on marketing in the 3rd quarter tells us that you actually did expect the lockdown effect to be temporary, but it's proven a little bit more permanent. So I suppose I just wanted to go back and sort of test that assumption.
I mean, do you think we are seeing a sort of one blip in terms of engagement? Okay, it's an extended blip. But do you think, for example, next year, you'll be facing sort of reduced level of engagement? And that's something we need to factor into our thinking. Thank you.
Thank you, Thijs. So first, we have a question from Thomas at Singhalerstedcity on esports, SME revenues going down and if we could elaborate somewhat on the transitioning and how the media revenue streams can develop over time. We can start off with that one. And then afterwards, we have a follow-up questions on the marketing going down in the quarter. If we are seeing any if this is an isolated blip in engagement or not?
Hi, Tom. I'll start with your question on eSports. And you're absolutely right on the ticketing sales, which is 100%. But I mean, one of the other big components that we see also in our owned and operated is the brand sponsorship sales. And I think that we've been quite clear both in Q2 and also in this report that we continue to see the decline in brand sponsorship sales.
And I think there's a combination of 2 factors. I mean, first of all, even though we are driving better sort of viewing numbers and reach on our content than ever before, we cannot do all the activations that we have planned in the fiscal arena and events. We're working on it, it's a large point, and we are refining and improving our both audience experience, but also interaction in the broadcast to also provide the best outlet for our brand sponsors, but there is still a way to walk on that one to get those perfect. And the second part is, of course, I mean, as we were closing many of these negotiations and discussing with many grandfathers, the outbreak of corona happened, which meant that you had a long pipeline of potential partners and that went down quite significantly because the first thing also some of our partners had to do was to look through their cost base, which of course impacted our discussions with them. So we do, unfortunately, see a negative trend within the brand sponsorship sales.
On the positive side, I mean, we've seen more interest than ever before about having access to our content, which means that we've been finding many strategic and important media rights deals giving us more reach when it comes to global international streams, but also local regional fees and also value. So I think that's the way to look at the combination. You're seeing it grow to media rights revenues, but you're seeing a bigger decline in brands sponsorship revenues.
And then also the gaming side, Thomas. I think that when it comes to engagement, we saw a very strong engagement among our players or fans, especially at InnoGames. And to the way we look upon it is that this is not necessarily correlated to the pandemic. We see that's more related to very successful in game event that engages with the fans and they can play more. So hence, as a result, as long as we can continue to and one should really emphasize that in games is very good when it comes to creating a longevity within their portfolio of games.
We believe that the engagement is going to maintain independently of a pandemic or not. So from that perspective, we feel confident that our relationship with the fans is going to be maintained also in a more normalized environment, and they're to continue to enjoy playing our games from that perspective. So I hope that helps.
That does. And one follow-up. I mean, obviously, it's great that you've settled on sort of completing the strategic review and keeping the business as is. It makes sense given just how strong Innogame is. I suppose the question is, is there any appetite to close out at least some of the minority given that sort of minority leakage is so significant within InnoGames and it's clearly doing so well?
Or is there no mechanism for you to do that?
Hi, Tom. No, there is a clear mechanism to do that. And I think everything comes with opportunity cost. So as we're saying in the strategic review, we're also saying that we would like to now build value in the 2 verticals, organic and inorganic, both eSports and Gaming. And then it becomes a cost allocation on how do you want to do that in the most shareholder value accretive ways.
And that is, of course, what we're looking at and focusing on.
Thank you for those questions, Omid.
Thank you.
Operator, we can proceed to the next question.
Yes. Our next question is from the line of Erik Molberg from ABG. Thank you. Please ask your question.
Hi, guys, and thanks for taking my questions. So the first one, in terms of your strategy within the gaming division, 2 years ago, you had a better position than several of your peers. They all they have now surpassed you quite considerably, both in terms of sales and in market cap. Could you perhaps add some more flavor on how you plan to create value within this division and the general pipeline in terms of M and A?
Thanks for that question, Erik Mollberg of ABG. It was a question on looking back 2 years and whether or not our competitors, our peers have surpassed us, I think this is a question for Maria to answer.
Yes. Hi, Erik. I'd like to look forward. So I think that's what we are focusing on right now to make sure we build value in the gaming vertical from where we stand right now. And I think that the foundation we're having with InnoGames and Cognigates is a very strong foundation.
We're coming out of the quarter extremely strong. And yes, we would like to grow both organic and inorganic, which means that the inorganic path is, of course, adding further portfolios next to Innovain's in the mid core sector and the Congregate and the Casual sector. So that's how we want to build value and over time then give back value to shareholders.
Got it. Could you perhaps just give some more flavor in terms of the M and A pipeline, just in general in terms of competition when you're sort of looking at targets, etcetera?
No. I mean, we would never speculate and comment on any pipeline detail, but I think it's fair to say that mean, gaming has performed very strong post the pandemic, which of course means that it's an interesting sector for many players. I think that we have a strong portfolio. We believe we're a great home for entrepreneurs. So that's the path we want to pursue.
Got it. Fair enough. And just a question here on congregates.
Could you perhaps give us
some more flavor on how this part of the business ended the quarter to compare it with the start of the quarter?
Yes. I think hi Erik, it's Lars here. I think first of all, I mean, I know you know this, but I would like to just repeat it for clarity. Of course, Kongregate was had some difficult comps as we going into the year, we discontinued 2 third party IPs, AdCap, AdCom, which was 2 strong gains within the Comrade portfolio. Then with that taken aside, looking at the performance, I mean, at the end of or in the middle of September, Congrats launched Teenage Mutant Ninja Turtles, which was very well received by the market.
So looking at how the quarter ended, we came out on a positive tone as well, thanks to that launch. And now we are looking to continue to monetize in that title going into the Q4. So and we as you know, we don't provide specific data on Kongregate, but it should be emphasized, of course, that we have a very or a very successful launch of this new type of tinnitus with needle turtle.
Fair enough. And just in terms of when is it fair to assume that this side of the business can return to growth year over year?
No. I mean, it's going to be a result of us it's going to be easier comps as of beginning of next year as adcom and adcap is out of the comparative period, so to speak. And then Kongregate is going to definitely be back into growth. And I think that the management team of Congregate has done a lot of work also to make the under the hood, so to speak, to make the Congregate a much the turnaround has been impressive and that means that they also are ready to make use of the new titles that are going to be launched next year as well.
All right, great. Thanks for that and thanks for taking my question. That's all for me.
Thanks, Erik. Erinn.
Operator, next question?
It's from the line again of Oscar Ericsson. Thank you. Please ask your question.
Thank you and thanks for the answer earlier as well. Just a question on M and A to strengthen the equity stories. Would you expect M and A in both segments, I. E. Including esports?
And what would you say regarding the types of targets and the size of the targets, how that might differ between the segments? Thank you.
Hi, Oscar. Yes, I think we touched on the gaming type of targets before and I cannot go so much deeper in there. We are looking to find studios that complements our existing assets in the casual and mid core genre of free to play mobile. And if you look at the esports, I think given that the market is in its totality quite a lot smaller than the gaming, it would probably be natural that the target would also be smaller than if you look at a gaming size. But it's about finding capabilities that would complement our existing capabilities.
We have 2 amazing brands on the back of ESL and Dreamlike. And I think the way we turned around those 2 companies to operate also in this online environment is very strong and very promising. But it also when you look at it, there's also things where you could further strengthen our capabilities and that's what we're looking at.
Got it. Thank you. And one more question regarding gaming then. I mean, we're 1 month in now to Q4. Have you so far seen any sort of positive effects on engagement activity and spending from the renewed lockdowns across Europe and the U.
S? Or is it similar pattern to Q3?
Oscar, Lars here. Thanks for the question. I think that maybe reporting back to the earlier question that we actually the engagement is not necessarily related to lockdown or not as we see it. We also proved in the Q3, even with more open societies, we saw engagements increasing as people were enjoying the content that we provided within the games. So I think that is the trend that we are looking forward to continuing.
And then we'll see if there might be, as I think one of your colleagues referred to us, an additional blip following a second wave now coming in. But I think the message from us is clear in the sense that through strong in game events, we've been able to keep engagement high, independent on the pandemic or not, and we believe that, that's going to continue as well.
Got it. Thank you very much.
Operator, next question.
Yes, sir. It's from the line of Erik Lindholm from Nordea. Thank you. Please ask your question.
Yes. Hi, Maria. Hi, Lars.
Hello.
So a couple of questions from me. First of all, what would you say is driving the strong growth in browser within gaming? And would you expect that this growth can continue if it's sustainable, so to speak?
Thank you so much for that question, Erik. What is the driving factor beyond the browser growth? Maria, perhaps you can answer
that. No, but I think we said in Q2 that we actually saw a quite positive reactivation of old customers finding their way back to our old games, such as Tribal Wars and so forth. It doesn't actually exist on mobile. And on back on the positive trends, we also increased and started to make marketing again back of these games, which we have not done for several years. So I think that is what is driving the positive effect of browser.
We have seen to some extent some of the more time consuming games that customers have now churned out as the lockdown goes out and the world is a little bit normalized. But on some of the games such as Tribal Wars, we are actually seeing continuation on strong engagement levels, which is very positive. If that is fair to say or not, time will tell. But I think that it is really great to see the strength and the longevity of the InnoGames title. I mean, this is the first title, Tribal Wars, that they launched and also how good they are in live ops.
And that is also promising when you look to the new titles. So then we will see a browser how long and how much it will grow in the months to come.
All right. Thanks. Could you also give some more color on the KPIs that you're seeing for the early tests of the games that you are launching in InnoGames in 2021?
Yes. I mean, hi Lebron. I don't want to go into the specifics. But I mean, the first two tests, I mean, what we do is to look at the retention rates, which is the rates, which is the first part and then you go in and look at monetization levels. But if you look at the retention, which is of course one of those key components, based on the benchmark that we set up and the outcome, it looks very promising and which gives us also comfort that we are on a very good trajectory into the ability to launch a successful game.
Still to come is monetization and still to come is actually to see it live. That is always the final determining outcome. But I will look forward to the first game. It's going to come live in Q1, and that's going to be a city builder theme on back of Port of Empire and the learnings we have there.
Thank you, Marianne. Okay, you have a final question?
Yes. Just a final question. In terms of M and A, do you feel comfortable going to a sort of net debt position as well to carry out M and A? Or if are you limited to the net cash that you have currently? Would you use equity, for example?
I think it goes without saying that you will look at the full range of capital structure means when you assess M and A targets. We do have a strong balance sheet, but I think that will overtake us
so far.
All right, great. Thank you.
The next question is from the line of Henrik Olson. Thank you. Please ask your question.
Hi, this is Frederik Olson from Handelsbanken. Hi, Lars and Maria. First, congratulations on the strong report. First one is a team together. I have
a couple of questions. A lot of
them have already been answered. So let me start off with the pipeline within indie games and Kongregate, and I'll follow-up on Erik's question there regarding browser exposure. Are we set to see browser exposure come down from the new pipeline? Are there more mobile games, so to speak?
Yes, all our games. We have 4 in Inno games and then one bigger. Then we have, of course, many casual games coming out eventually for me. But all of them are mobile first. And what we will then explore is whether depending on success rate, if we then convert them into browser or not, but they will always be mobile first, which would then over time, of course, change and shift the ratio between mobile versus browser sales in our portfolio.
All right. Thank you. And then moving on to the esports. Are there any one off costs related to the Dreamhack and ESL combination?
Yes, there were some one off costs, but none significant.
All right.
And just one final general question. What's your view on the esports your esports operation if there are no live events to return in H1, 2021?
The other thing we have said is that we are extremely happy on how we have converted our events online in esports. I think the last challenge that we have not yet cracked is how would you move festival and the festival experience online. We're hoping to be able to find a great solution for that as well. But I think the engagement and the reach, the entertainment level in our online broadcast is very good. And of course, we're working hard to make that even better.
And that's what we continue to work on. And I think we are, of course, hoping to return to normalized world and having our live events. But even when so, we're probably going to continue with these many learnings that we've done in the online world to have a hybrid environment going forward. So yes, we want to return to physical events and we're hoping to do so sooner than later. But we're very happy with the product that we managed in quite short time to actually build and set in place during a period of a quite big turmoil, to be fair.
So I think the team has done an amazing job in setting this in a good way.
Yes. Building on Maria saying is that, I mean, we're getting better and better for every day that passes by when it comes to how we can manage online. We have also evolved our concept when it comes to studio events. And that means that to be honest, I mean, depending on what the future holds, we have a product that is suited either for live environment or for an online studio environment. So from that perspective, we feel quite comfortable.
Thank you very much.
Thank you. Thank you.
It looks like there are no further questions. Please continue.
Thank you, operator. So thank you very much, everyone. That concludes the conference call for MTG's Q3 of 2020. We appreciate you taking the time to join today's call, and we look forward to staying in touch until we release the next report, our Q4 due February 4, 2021. Thank you so much, and have a wonderful afternoon.
Stay safe and healthy.