Welcome to the Stillfront audiocast with teleconference Q3 2021. For the first part of this call, all participants will be in listen-only mode, and afterwards there will be a question and answer session. Today, I am pleased to present CEO Jörgen Larsson, CFO Andreas Uddman. Speaker, please go ahead and begin.
Thank you very much, and good morning. We would like to start off today's session with just making a reflection on before going into the presentation on how we came in this year. We came in this year with two well-known and explicit challenges in the terms of both the IDFA or the changes for marketing conditions labeled the IDFA issue. Secondly, we entered into difficult comparison numbers from the sensational and exceptional, I should say, growth that we enjoyed from mid-March to June last year with a very high intake of new users. Obviously, comparison numbers and the IDFA change were known and dealt with challenges.
I would say before going into the actual numbers for Q3 and commenting on the details, this is important with the Q3, see the full perspective, because we feel that we are now, with the Q3 and what we've seen so far in Q4, we are leaving these challenges gradually behind us. We are in the new normal and with less comparison disturbing the picture. Anyway, entering into the presentation on slide two, you have the ordinary Stillfront at a glance overview. We are now 21 studios, if you also include Jawaker, which is not included in the Q3 number because it's consolidated from the first of October, but nevertheless was acquired during the quarter.
We have constantly developed and evolved our portfolio of games that have a long life cycle, and you will see that again, that it's developing and that it's performing. We have now 62 million unique players playing our games worldwide, and you can see how these are distributed. North America continues to be our main market with 52% of revenues, and then Europe 30%, and Asia 12%. U.S., Germany, MENA, and U.K. and Canada are the individual largest markets. We are now more than 1,260 professionals, distributed according to the red dots in the map on the lower right side of that slide. Going into next slide, a few comments on some highlights of our portfolio.
We have enjoyed a very strong year-on-year organic growth performance from some titles which are encouraging, and War and Peace that was launched in Q4 2017 has really had a tremendous growth coming back to tremendous growth after being one of our engines for growth the first 18 months, and then being a bit slower and weaker, but now have come back to be a strong growth. This is important not only with the numbers per se, it's important to see how products that have been around for, in this case, four years, can come back to high growth numbers. We're also pleased to see that Conflict of Nations has been growing tremendously for us. So that is one of the absolute most successful launches ever for us.
That was launched in the mobile version in September last year. Not the least, which we will come back to, is the success of BitLife from Candywriter. We also can see that Moonfrog's product, Ludo Club, was the number one ranked product on Snapchat worldwide in September. Moonfrog has had a great start being part of the group. We also, which we will come back to, but it's important to emphasize the number of products that we have in pipeline and soft launch in for the short- term going into soft launch. In total, we have more than 15 products that just have entered into soft launch or will enter during Q4. Of course, that is something that fills us with optimism and opportunities for quarters and years to come.
We also have opened up a publishing division at Goodgame so that we can leverage the capabilities we have for publishing also for products from other studios. The first one is War Life that was launched a few weeks ago. Also we have DogLife, which is worth mentioning, that was launched as a sister product of BitLife by Candywriter in early November. We expect and hope and think and believe in every aspect that we will see a significant UA ramp up. We already have seen that in the latter part of Q3, but we expect that that will continue into Q4 and through Q1, fueling the stars of both existing and new games.
I'm sure you are aware of, we are entering into the seasonally stronger quarters during the autumn, winter, and early spring. Turning to slide four , a few words about the numbers. Bookings grew by 32% and net revenue grew by 28% in the third quarter, driven by acquired studios and some organic good growth from some studios. All in all, we still have a negative organic growth, 8% in bookings and 11% in net revenues. We come in the upper part of the communicated guided range with SEK 131 million in revenues.
What is important to note as well is that we always have had since I founded this company 11 years ago, Q3 is a slower quarter because our users, typically 35 years, goes on vacation with their families and play less games. The outcome of 11%-13% related to Q2 is actually in the lower part of what we usually see as the seasonality pattern, which is 5%-8%, or some years even 10%. I think that is a very typical pattern that we see. What is important for us is that we work successfully with Live Ops, and one metric of Live Ops is the average revenue per daily active users, and also how we are successful in capitalizing and monetizing on ad revenues.
We are pleased to see that the organic average revenue per daily active user increased by 13% in Q3, and that was across all product areas. The pro forma growth rate for 24 months, just to visualize the effect, the comparison effect that we have been struggling with this year, is that we are close to 10% in compounded annual growth rates with one studio as exception if you look at the last two years. It's clearly relating to the exceptional development during the pandemic as an effect of the pandemic in last year. We managed to spend 24% in UA in relation to net revenues, which is a very high number for being a Q3, which was exactly what we expected.
As you can understand, that was very profitable as well since we have also delivered in the upper range of our revenues in Q3, so we are pleased with that development. We can see on the LTM graph in the middle of the slide that we are on all-time high in revenues with SEK 5.1 billion approximately in revenues. Turning to our profitability, the adjusted EBIT development on next slide number five. We can conclude that we closed the quarter with SEK 433 million in adjusted EBIT, which is equal to 33% EBIT margin.
That is clearly above the communicated guided range, and that is due to both that we were able to deploy the UA with higher profitability with lower UA, but still we are higher on top line. That means that's one proof point that the IDFA challenges and the marketing challenges are definitely gradually having less and less impact. We can also, which is something that is very important for us, we have always strived for having a very predictable and stable development financially-wise. I think if you look at the development on the left graph, you can see how very stable we are in profitability, both percentage-wise, but even more in absolute numbers.
We also, in this case, we are on LTM, last 12 months, on all-time high in terms of EBIT with SEK 1.741 billion. Turning to slide six, looking into our active portfolio. We still have 56 games in our portfolios, 76% on mobile. We are almost flat on ad bookings in relative terms, so we have 19% in Q2, now we have 18%, so we are keeping this ambition from 2019 that we communicated to be at high teens. The bookings in the active portfolio increased by 29%. We also again saw that ARPDAU is organically growing, as I just elaborated on, but it is down in absolute numbers, and that looks - that is a paradox it looks like, but it's basically that we have a different product mix.
Also worth mentioning is that the bookings from games outside the active portfolio increased quite significantly and amounted to 78 million SEK in Q3, which is then driven by the products that entered into soft launch during Q3, but not yet qualified to be in the active portfolio, but that is of course a positive sign for us. Looking a bit deeper into strategy on slide seven, strategy consists of 13 games, 65% on mobile, so a lot of our strategy players still enjoy the big screen experience from desktop. 4% of our revenues here is generated in Europe, so we're strong there.
Again, Conflict of Nations grew by almost 200% year-on-year, and is now one of the largest product in the whole product category of strategy, which is again very pleasing. I would like to emphasize to grow a strategy game by 200% year-over-year is not very easy because it's much more competitive and much more slower moving in strategy compared to, for instance, casual. Again, War and Peace are continuing to develop very strong, and the Empire titles is very stable, which is a good contributor of course. Even though low numbers, it's worth mentioning that we are increasing, not percentage-wise, but in absolute numbers, we are continuing to increase the ad revenues in strategy. I think that is promising.
We think that we can do several percentage points even in strategy where you usually see that more - a bit more tricky than in casual to generate ad revenues. Turning to simulation RPG and action, the next slide. It's 32% of our bookings a nd we had a 53% year-on-year growth, primarily by acquired titles, but also several games being strong organically. To take one of them, Shakes & Fidget, again, a very mature product, but you can find ways of growing them strongly even when they are 10, 12 years mature. That is something that is very important in our strategy to have games that lasts for a long time. We have many proof points this quarter just as previous quarters.
We have weak performance year-on-year of Kixeye but the important is that it has stabilized quarter-over-quarter. That is satisfactory by hard work from the team. We can see that we have 67% are mobile in this area, so it's a lot on desktop as well. Ad bookings increased from 5% to 7% in this product category. Looking into next slide, the Casual & M ashup area. Here, the comparison numbers are very special because we have been growing significantly with acquisitions. Now we have 17 games here, 96% are generated on mobile, 35% are ad bookings, and this is very U.S. or North America heavy with 65% of our revenues. This area now represents 43% of the active portfolio's bookings.
We see very strong performance from Moonfrog and Candywriter. Moonfrog has enjoyed good development for the full presence in the group and Candywriter I will elaborate on. However, Super Free has been significantly performing below the expectations that we have. I would like to elaborate before turning to Andreas and the financials on next slide, because this is important that we can describe and you can see the dynamics clearly in Casual & Mashup, which we entered into as a category just as a consequence of our statement two years ago on a Capital Market Day. Casual in particular, but also Mashup, is a much more fast-moving category than any of the other ones that we have.
It moves more rapidly upwards when you get momentum and downwards when you don't have the momentum or when the marketing is not meeting our very tough criteria for profitability. Some examples here, because this is important to understand the dynamics. Storm8 grew significantly by more than, well, approximately 65% in a few weeks last year when we had this exceptional marketing opportunity driven by COVID-19. That would not have been possible if we were present mainly in simulation and strategy. That was very beneficial for us. On the other hand, when we cannot market the product with the same profitability on the same level, they bounce back. I think that's very clear. If we take away Storm8 from Q3 this year, the whole group would have been growing organically.
That's a natural bounce back, and it's moving much faster upwards as well as when it bounces back. They have stabilized on high levels, so we're continuously very pleased with Storm8 and the fantastic timing of release, you know, last year, but also on the levels that they are now. We are further pleased to conclude and see that there is a new Match 3 games in development aimed for being released at around the year-end from Storm8. Looking then at Super Free, that has a very strong Q1, has showed significantly weaker top-line development. When a game like that or a studio like that declines, it goes faster, and it becomes large numbers. That is the number one disappointment that we have.
It's basically that we haven't been able to market their products on the levels that we forecasted. We have full attention to that issue, and we are remaining confident on the studio's long-term prospects. This has been the case two or three times in history previously, so it's nothing new. They have shown at least two or three times that they can bounce back and grow rapidly when they gain momentum with existing and/or new products. Finally with Candywriter, if you recall the ones that have followed us, that we saw as a downer and a slight disappointment in Q2, Q3, the only studio that did not benefit from the COVID-19 effect last year.
All of a sudden, through hard work and very professional management from the team at Candywriter, they have had - it's basically one of our key growth drivers last year, up until now, both Q2 and Q3 this year. BitLife, their main product, has now, in quite short time, entered into being one of the second-largest title basically in our whole group. That shows again that when you gain momentum, it's rapidly growing. We are of course very excited with the prospects of DogLife, which is built on the same engine, and just recently soft-launched what that could bring the next coming years. Also, as touched upon, Moonfrog has also started very strong the first seven months being part of the group.
What is important to understand here, also in both direction, is that this area is moving much faster, which is exactly the reason why we want this on board, because we can grasp opportunities in a different way compared to strategy. Of course, from time to time, some of the products will not be able to scale, and then they lower their top line rapidly. This is nothing strange. It's part of our business model, but worthwhile elaborating on. With that, I would like to hand over to Andreas. Please go ahead.
Thank you, Jörgen. Good morning, everyone. I will turn to page 12, please, the financial highlights of Q3. We continue to have a solid revenue growth of 28% and good adjusted EBITDA margin of 33%. A record cash flow-generating business of SEK 486 million in Q3 from operations. We continue to have a strong financial position with almost SEK 1.2 billion of cash plus an undrawn credit facility of SEK 3.2 billion. Our leverage for the report in the quarter was 1.2. However, we did complete the Jawaker acquisition post-quarter, and we expect that would that have been included, we would've been around the financial targets of 1.5.
Strong financial performance, diversified financing platform which we've been continuing to build on, and this will create flexibility for future growth. I will turn to the income statement on page 13. Net revenues grew by SEK 284 million, or 28%, to SEK 1.3 billion. This is driven by acquired growth that delivered 40% increase and offset by a negative organic growth of 11% but with a slight negative year-over-year impact on FX of 1.3%. I think just one thing to note around net revenues, and Jörgen pointed that out as well, is that in Q3 2020, we had a fairly big deferral positive effect.
The organic growth is still negative in bookings by only 8%, and it's really the bookings that drive the business. We also see in this underlying this and what is very important for our whole portfolio is that we continue to diversify our revenue generation. We have the acquired growth, which brings both existing titles, but also new titles. We also have higher revenues from games outside active portfolio, and that, of course, continues to de-risk and diversify our revenue streams. Ad revenues, as we have noted in the last quarters as well, are on our 18% of net revenues. That also creates this diversification, and that was SEK 241 million for the full quarter.
Looking at even if we grow with 28%, our platform fees are only up 1% by SEK 4 million. This is really the dynamics that is important that we see now coming through in this year, that our gross profit, after platform fees, is up 37%. And that is very important because that increases our gross profit margin by 6 percentage points. T his increase of cash we can obviously deploy and utilize in our user acquisition, where we have increased by SEK 155 million, or 24% of net revenues. T his is a very high spend for a Q3, but Jörgen did elaborate more on drivers of that.
Other external expenses is up SEK 20 million or 40% year-over-year, and staff costs increased by SEK 84 million or 56% versus last year, the same period. Amortizations and depreciation increased by SEK 33 million. This is in line with what we've seen in previous quarters as well, and this is just more projects being amortized over time and in line with our product development. Adjusted EBIT increased by SEK 14 million or 3% to SEK 433 million in the quarter. We had some items affecting comparability, mainly driven by the transaction costs booked in the Jawaker acquisition of approximately SEK 80 million, and we had a small IFRS effect of SEK 2 million.
GAAP items, as we've seen in the past quarters as well, they naturally increased by the acquisitions that we've done in the last twelve months. That is now 170 million, so 75 million increase versus last year. That gives us an EBIT for the quarter of SEK 243 million. Financial items was SEK 55 million, and the underlying interest costs were 41 million, which is the cash cost of that. Then we have SEK 17 million of non-cash interest that is booked based on earn out considerations. Just to note that it's lower versus Q2 this year, and that's of course because we paid out a lot of earn outs in Q2, so the interest components of that goes then down in the following quarter.
We had a small effect on FX movement. In terms of the tax rate, it was SEK 58 million or 31%, so similar as we had in the previous quarter. If you exclude the non-deductible transaction cost, the tax rate would have been approximately 28% for this quarter. Turning to the next slide, to slide 14, the cash flow, briefly touch upon the cash flow for the quarter. As mentioned, we had a record level of cash flow from operations, SEK 486 million, which is the same, 47% growth in just the fourth quarter. We did pay taxes of SEK 63 million globally.
We did have a positive effect on working capital whereas this was primarily driven by that we got four settlements from one of our bigger platform providers in the quarter, not in all studios, but in the majority of our studios. We did have SEK 181 million on investment. Majority of that was from product development, which was SEK 143 million, in line with the relation to revenue, so 10.9%, that was seen in the previous quarters as well. We did pay the last cash for the game assets, cash amount that we acquired in Q2. We had, of course, small movements on the net effect on the financing activities.
We did get in SEK 877 million on the capital raise. The last tranche of that from one of our major shareholders only came in in Q4. We did utilize some of that cash to pay back temporarily the credit facility towards our banks. Very strong cash flow generation in the quarter, but I think especially looking at the 12 months, as I normally state it's how this develops is how you should view cash flow generation. I mean, in the last 12 months, we have generated over SEK 1.5 billion of cash flow from operation, and that is an increase of SEK 610 million or 65%, looking at the same period in Q3 2020.
We've continued to invest. We invested in the last 12 months SEK 568 million in new products, which we are now seeing being in soft launch. That is still increasing in absolute terms. In terms of the relation between the investment and the operating cash flow, there is a very healthy balance where the actual free cash flow after that growth to SEK 991 million or 86%, comparing the two periods. The cash conversion also improves in this quarter, in the last 12 months, and we now have 4.52 versus our EBITDA. Strong underlying cash flow generation in terms of the balance sheet. Temporarily, this has gone down.
We expect that to be when we have completed the Jawaker acquisition and with the last tranche from the equity raise that come in in the quarter, we would have been around our financial targets of 1.5. We continue to have a well-diversified majority profile on our debt portfolio, which give us flexibility in going forward. Just as a summary, continued revenue diversification and growth, exceptional cash flows in the quarter from operations, and it's driven by a strong margin, and we continue to invest in our portfolio, and we have a diversified financing platform. With that summary, I will hand it over to Jörgen.
Thank you, Andreas. I will conclude this presentation with slide 16 and 17. We start with 16. We decided to provide initial guidance for the fourth quarter. Basically driven by the fact that we see that there is still some uncertainty about the sector, the IDFA effects and so on, and the comparison thing. We think it's a good idea to provide this guidance again. The guidance that we provide is that we have net revenues between SEK 1,350 million and SEK 1,500 million, with an adjusted EBIT of SEK 425 million-SEK 475 million. That means that we foresee a growth Q4 over Q4 between 25% and 39%.
If you take the midpoint, the full year 2021 net revenues will be just over SEK 5.4 billion, with an adjusted EBIT of just below SEK 1.8 billion, which is equal to approximately 33% EBIT margin for the full year. Turning to next slide, the final one. I think that we can say that we continue to perform stable and well in the quarter, with several studios showing strong organic growth. We are passing through and leaving the two challenges that I opened this presentation with namely the pandemic comp numbers and the IDFA. They are definitely transitory, and we are soon leaving them completely behind us.
We have, as mentioned, many exciting, I would even say, 15 products in soft launch or will commence their soft launch very soon during Q4. We also have a good pipeline for soft launches the H1 of next year, which is approximately additional 15 at this point in time. We are in a very good position to return to organic growth in the latter part of this quarter. It's hard to say exactly when, because it obviously depends also on the launches that we have and are conducting. With that, I would like to conclude the presentation and open up for questions. Please go ahead.
Thank you, sir. Ladies and gentlemen, if you have any questions for the speakers, please press zero and then one on your telephone keypad. I repeat, if you have any questions, please press zero and then one. First question of the day we have from Marlon Värnik from Pareto Securities. Your line is unmuted. Please go ahead.
Hi, good morning, Jörgen and Andreas. Thank you for taking my question. First, just a question on the Super Free Games. It continues underperform with less spent on user acquisition than expected during the past eight months. Can you give some more flavor here of your expectations in the past, but also going forward, when we can expect it to return to growth? T Hen if also you can quantify the effect it had on the UA spend here in Q3.
I think it's absolutely key to put this into perspective. We have the experience, and we have been around doing this for quite some time, that it's far too early to judge any long-term development only from less than a year. If we look at Bytro Labs, if we look at Babil Games, if we look at Candywriter, for instance, all of them were performing not so good or even in some cases significantly lower than our expectations, but then came into tremendous growth. It's not a sign that they are broken in a kind of fundamental way. It's just when you come into the early first month, you have a plan and you have product on its way out.
Of course it becomes very clear whether these products - whether you gain traction in marketing. It's several factors coming into the UA spend. Are we concerned about this in the mid to long term? No, we are not. We know that they have been showing capabilities of coming back to growth again, and they have an engine that is very competitive and a portfolio of existing, but not the least new product in the future. They have been proving doubling their revenues in six months, at least on two or even three occasions previously. We think that there is - we expect that this is - we see it stabilizing, and we expect that we will be able to return to growth again with Super Free Games.
That is very hard to say whether that will be in, I don't know, January or February or something else, because that is not how this works, because we are very, very disciplined when we allocate our UA. We only allocate if they meet our very high expectations on return on marketing spend, and we do not compromise. We're not throwing our best money after a lower return. Instead, we put them at other studios with higher return. We don't present the absolute spend per studio or game. That is what I can say, but o bviously it's a significant top line dip for the reasons that I elaborated on, that these games are moving much faster than other games, but in both directions. We can see that BitLife is increasing with this high pace.
I assume that also, I mean the ad booking so far is slightly down, compared to Q2, 38%-35% Casual. I assume it's related to Super Free Games, as well.
Yeah. That is a part of that. Definitely so. We are still on the high teens that we have discussed, but you're right in that comment.
Would it then be fair to assume that the Super Free performance here in Q3 is more below your expectations than it was in Q2?
Yes, that's a fair assumption.
Thank you. I think we also need a comment on the Kixeye earn-out dispute. I mean, it seems to be timing-wise well triggered. I understand that it's filed by the sellers and not by anyone active in Kixeye today. Is it correct?
That is correct. It was a unique transaction in the way that the founders did not follow. I think that is important to note in this context. I founded this business 11 years ago. If you conduct business on a global scale and grow businesses, acquire businesses, disputes happens when you run businesses. It's not something that is very neither scaring or strange. We are confident in our position. We see no factual nor legal basis for the claims or the lawsuits. We are in dialogue with our external auditors. We see no reason to do any provisions in our balance sheet.
We think we are in a good spot, but we follow the protocol for handling processes like this, which is not in public.
Can you say about the timeline here of the process, when can you expect the final statements also?
In relation to this, you mean?
Yes.
I mean, these processes could continue for years. Again, it's also important to note that this is not a material number. Even if we will not have a success at all, which we cannot foresee, this will not be a material number for the group. That is also important to conclude.
Just finally here on the inorganic growth that you purchased, you expect it to return organic growth towards end of Q4. Did it then comps already in the beginning and mid of the quarter as well? Can you give any year-over-year comments here? Also, again, growth drivers towards end of Q4. What can you say here? Thank you.
I mean, it becomes a somewhat strange KPI because for each quarter now, they are entering new studios into being organic. For instance, Nanobit has come in being organic, which it wasn't - it was not organic so to speak, in Q2. This will constantly be difficult to compare because the number of studios that are organic, which studios are organic changes, for every quarter that passes by. Basically, the reason why we don't want to say that from the 25th of November, we are organic positively, is the very reason that our philosophy is to fuel the product that returns the best that yields the best.
We don't care, to be honest, whether it's a studio that's been with us for 11 months or 13 months. We put the dollar where it yields the best. That is why we will never say that just for the sake of it, let's try to keep up the organic growth and put money where it yields not as good as it would otherwise. If we would have kept that philosophy instead of the one that we have, this company would have been much smaller and not being able to consistently perform with the kind of margins that we have done for many years now.
Perfect. Thank you. That was all from me. Thank you again.
Next we have Oscar Erixon from Carnegie.
Thank you and good morning, Jörgen and Andreas. A couple of questions from me. First of all, regarding your guidance here for Q4, and your comments as well in the report, is it fair to say that you're now seeing an inflection point of sorts in October and November, and that seasonally adjusted CPMs are coming down and UA efficacy, and hence also better momentum for in-app purchases-based games and UA? Thanks.
Yeah. We have seen gradually improvement in the performance of our marketing, actually since July and onwards, and it's not - y ou cannot only focus on the CPIs or cost per install, it's the relationship between LTV and CPI. In some cases, the CPIs are going down. In some cases, the CPIs are stable, but we have a much higher LTV. The whole thing, the whole trick of the trade is to be able to market with a good relationship between the average lifetime value for a cohort in relation to the average CPI per cohort, and that is improving.
We see increased yields on marketing or return on marketing spend gradually, and not the least now into Q4 and even November seems stronger than October. It's going in the right direction. One related question is how it will look usually from after the first week of December up until the holidays or the 26th of December is usually more competitive for UA. This year we have seen some sign that traditional retail or online retail that usually are marketing heavily during this period have stated publicly that they potentially are not marketing as much as they usually do. If that is the case, that is positive for us, but that is something that we haven't.
The basis for our guidance and our forecast are not that happens, but it's a potential different pattern than usually. Otherwise, this part of the year as well as from the 26th of December and throughout Q1 are usually the best for marketing in general terms. I'm very optimistic anyway, both our products, but also our channels. I'm really pleased to see that we have been able to leverage the fact that we have such a wide diversification and wide array of marketing channels that works for us. That is one of the key competitive advantages which I expect that we will leverage even more as we grow our portfolio.
Great. You partly answered my follow-up there regarding supply chain issues and potentially less competition for marketing from other sectors. Would you say now, I mean almost mid-November, are you seeing those signs now or reduced spending from traditional retail ahead of Black Friday, for example?
I think it's the number of data points is not enough to make such a statement. I can just conclude what you stated and what I stated, that we of course follow the market closely, but I wouldn't draw too drastic conclusions on few data points.
Understood. The Q4 guidance, unusually wide, in terms of the revenue guidance. Does this reflect the back-end loaded expected marketing spending and the game launches or how should one view that?
Yes, we - there is hardly a usual guidance range for us because it's only the second time. Yes, you're correct. It's larger than it was in Q3, so we're just over 10% in the range, how wide it is. It's just what you indicated. I think with 15 products in the scale-up phase or in the soft launch phase, some of them and some still to come, w e launch products going into soft launches at least, each and every day now. It's of course not very easy to say what traction we gain up until, I mean, the New Year's Eve.
I mean, that's not how you operate, but obviously the outcome for such a short period is not very easy to say. The longer perspective, we think we have a high quality of exciting products coming out that we are convinced will contribute significantly next year. But how much comes in the Q4 and how much comes in Q1 and onwards is a bit trickier.
Understood. I think you have a quite positive tone on IDFA issues being behind you now, which I'm glad to hear, of course. Do you see any risk for further changes from Apple or Google impacting marketing efficiency ahead, or is this now sort of how bad it will ever get in your view? I can add on a question to that, on that Apple will not be allowed to delay the App Store payment changes seemingly. Do you still expect to be able to link to external payment providers on iOS here from December? Thank you.
Yeah. We don't really use the phrase as bad as it can be because this is the new normal, and it has been an absolutely normal component in our business for 11 years that there are always changes in market channels. This one is of course larger than others because it comes from a platform owner, so that strikes in a much wider way than other changes in channels. It will always be changes, and it's all about adapting. Actually, I think that - but that's a longer discussion.
I think that this change and other changes actually strengthen publishers and content owners because as we acquire less refined traffic from intermediaries like Facebook and others, we do more of the refinement on our side of the fence, so to speak, which means that we have a larger portion of the total value chain over time, even though it's cumbersome with an individual change, and it has been a challenge, but it has played out nicely. I don't see the IDFA change per se being a significant topic for us going forward.
It will still be some changes in channels, but one way of handling this by the way, was that we, in just a week or so, changed the majority of our Facebook spending when they had their challenges over to TikTok, to ironSource, AppLovin, channels that didn't exist a couple of years ago. That shows that this is business as usual, basically, with handling changes. Changes are constant, obviously IDFA being a large one. We feel comfortable in our marketing work in general terms. On the App Store, the changes with App Store, fees and so on, of course it's beneficial for us that the ruling was also - t he ask for getting more time that Apple forwarded was dismissed just in the last 12 hours, I think.
From the 9th of December, it opens up for other store solutions. Obviously, that is an opportunity for us, then t o what extent that really happens because you never know until it really is implemented. We are ready to take advantage from that. We have soft solutions that are ready, but it will not be an overnight complete shift, but it's obviously something that is good for us. I also think that there is increased pressure all the time on the actual 30% store fees that will continue as we go forward.
Excellent. Then just one final question from me, sorry for asking so many. Regarding Super Free, you mentioned the game's not perhaps being ready in terms of marketing efficiency to scale and to grow. Is this related to the marketing mix, perhaps Facebook, game development or something else? Do you expect Q4 improvement first half for 2022, second half? How to think about it, please? Thank you.
It's a mix of these factors that you mentioned that is behind this. As I elaborated on, I see no reason to not believe in their mid- to long-term opportunities. I think that we're on track on gaining growth again. It's not the way that we operate to say whatever at whatever cost we should get Super Free to grow. They have to qualify to be returning their ad spend within the limits that we put on them and put on all products. It's only by delivering solid results that they will be back. Again, it's a far too short time to draw conclusions like this is an issue over longer time.
As I mentioned, Babil , Bytro Labs, Candywriter, three very important studios for us and big studios, all of them were underperforming for a short while, and then all of a sudden you gain traction and then it gains significance again. That is how we view it.
Perfect. Thank you very much, Jörgen. That's it for me.
Next is Edward James from Berenberg Bank. Your line is unmuted. Please go ahead.
Thank you for taking my questions. Just a couple from me. Would it be possible to just break down the Q4 guidance just in terms of the seasonal uplift that you traditionally see Q3 to Q4, the contribution from Jawaker acquisition, and then what's sort of baked in in terms of the improving UA backdrop? Then secondly, I've noticed just on the sort of Sensor Tower data that downloads for pretty much your entire games portfolio has significantly accelerated in late October and November, obviously helped by some of the game launches. There seems to be a significant acceleration in downloads across multiple games. Is that indicative of the better user acquisition backdrop?
Secondly, does that give you more confidence in putting your game pipeline into soft launch and releasing those games in the back end of Q4 and into 2022? Thank you.
First of all, to spare you and others a lot of time, we don't give forecast for each and every game. Also that's not because we just play some games, it's just because with UA. It's about that we are rapidly, which is again, a key thing to understand our company. We are very disciplined, and we're very, very, very agile in reallocating capital to whatever product in whatever studio returns the best. Concurrently as we speak now, I expect that we run maybe 1,200 campaigns in parallel, more than 1,000 at least. We will do that tomorrow again, but maybe 100 of them has been changed because they're not top performing.
It's a very sophisticated marketing philosophy that we have implemented and worked hard to get in place for quite some time, which means that it's not the way that we make this guidance betting on that product A or C or G will be the ones performing. Of course, having said that, we have higher expectations for some products, and as you clearly and rightly commented, and if you look at the app sources for downloads, that could be a good indicator, not necessarily a 100% secure source for how these products will develop. Of course, we are encouraged with seeing new products and the download numbers. It's different for...
Worthwhile mentioning that it's different for existing products because existing more mature products are more often grown by improved and more efficient Live Ops, such as new content and events and such. For new games coming into soft launch, the initial thing and the initial indicator that is important is of course number of downloads. We are pleased with what we're seeing and we will come back to report on Jawaker. Of course, we will come back to Jawaker development, they have been consolidated for a very short time so far. We have high hopes on that acquisition and the quality of the team, the quality of the product is really something that stands out the way that they have built their business on the product.
We have high hopes for not only Q4, but for the long run with Jawaker.
Great. Thank you. It's very clear. Just a final one from me. Would it be possible to provide a comment on the FY 2023 targets? We haven't sort of touched on those for a while, I guess, for obvious reasons. If not now, will that be a subject at the CMD later this month?
We, as stated in report, we remain committed to these targets, which means that we will not update them in a week's time. Obviously, then that wording would have been a bit strange. We believe that the way that we have developed our business, w e have a much more robust business in things that you don't see. I mean, how we operate, how we optimize our portfolio, how we can get collaborations going between the different studios and create synergies, not the least in how we take new products to the market. I mean, we have more than tripled the number of products going into soft launch, and they are much more complex and refined products than ever we've had. Without increasing, actually slightly decreasing, the investment in product development in relation to net revenues.
It was down as Andreas pointed out, to 10.9%. I think that we are in a good spot to gain traction from these. Of course, when it comes to the acquisitions, which is part of reaching the financial targets in 2023, we just concluded this quarter an important and high- quality acquisition. Of course, we need to factor in our share price. We need to factor in the multiples on privately held companies versus publicly held companies. I mean, the market has changed, that will be adjusted. Also, I think that we need to also tactically, as always, factor in how we finance acquisitions. That is what we always have to do.
If you believe that we will be traded on multiples on this level for two and a half years, and private company will not drop in multiples, then of course it will be harder and more challenging to conduct M&A. But we don't expect that, and hence we keep our financial targets. You want to add something, Andreas, on the financing part or?
No, I think it's due. I mean we did just raise equity in Q3. I think, I mean, we always work tactically with it. I think that's how we work. We have a broad financing portfolio with different type of financial instruments, and we have readiness to be able to execute. Of course, it's a tactical thing to fit into our strategy.
Great. Thank you.
Next, we have Nick Dempsey from Barclays. Your line is unmuted.
Yeah, good morning, guys. I've got two left. Just coming back to Super Free, i s one reason why you've not deployed as much UAC because you're worried about the efficiency of that? Is it just because word and trivia apps are more competitive? There's a bunch of them around, we can all see them. Is it a more competitive segment and therefore will be forever, and that will always make it a little bit more challenging to efficiently deploy UAC? The second question, you know, we're hearing from a bunch of different companies that there's notable wage inflation in the U.S. in particular, in all kinds of tech sectors, particularly anything to do with data.
You know, is wage inflation something you expect to be a factor for margins as we move into 2022, given that 52% of your staff are in the U.S.?
The first topic we think that was why we acquired Super Free, that they are very competitive and have an engine and a capability of building, operating, and developing products in these categories, which were white spots for us prior to this acquisition. We have not changed that in seven months. Just as little in the previous deals that we mentioned and just recently with Candywriter, we believe in the kind of products which led up to us acquiring them. We have kept that belief even though the first two quarters were not that strong for them.
Now we see that all of a sudden BitLife is number two in our complete portfolio, and they're growing with very strong numbers, and they have the sister product on its way out. It's not that we all of a sudden see a completely different competitive situation in just a few months. They are strong. They have earned a position over long time. It's just that in short time you get less traction. With the model we have with this very dynamic allocation of UA, we amplify the already faster and larger changing category of casual games.
With our approach of allocating UA, that will be amplified in both directions because we fuel with more UA when we have good traction and when they meet the requirements, and when they're not meeting, we're not allocating. No change in the belief. What we say to the report as well is that we believe the category will be there forever. It's a green field. We don't expect that it's not that easy to master this category starting from scratch, or it's not a lot of new entrants in that way either.
Yeah. In terms of the salary inflation, of course we also notice, but it's important to note that we have two studios in the Bay Area, that's where the inflation is happening. We have other locations in the U.S., but a majority of the U.S. workforce is actually less than the rest of the world. We have a lot of other locations globally from India to Europe to Germany, et cetera. Of course there is, you know, earn-out, et cetera, that is structured for some of these to tackle that as well.
I think yeah, of course we're keeping an eye on it, but we have also a diverse set of being able to employ people globally, which is also a thing that studios when coming in, all of a sudden they have a sister company that can employ somebody in a different jurisdiction.
Okay. That's helpful. Thanks.
Next, we have Hjalmar Ahlberg from Redeye . Your line is unmuted.
Thank you. A few questions from me. First maybe on the strategy genre, looks like UA in relation to revenue was a bit higher this Q3 than normal. Is this IDFA related or have you invested more in PPC because you see potential growth in some games or some new launch?
Sorry, I didn't get that. It's breaking up a bit. In which area? Sorry.
The strategy genre, you seem to have a little bit higher UAC spend in relation to revenue than historically in Q3. Is this IDFA related, I mean, low returns or do you see that some game that is worth investing in that will grow in the coming quarters?
I mean, as we pointed out, we have had good growth with Conflict of Nations. That is important to note that the IDFA thing was supposed to be completely about targeting traffic, which you usually have had in strategy. I'm pleased that we have been able to develop strategy in a good way throughout IDFA as well, because that means that to buy this less refined traffic and then build the models on our side, which we do to analyze user behavior and to make conclusions on which users are high spenders and mid spenders and low spenders is working quite nicely. Then strategy, it's different layers in this.
We have some products that has very good traction, but on the other hand, usually strategy is slower in Q3 than other segments because playing these games is more time-consuming compared to playing a casual game. Hence, when you are on vacation with your family, it's less likely that you take on playing a strategy game compared to playing a casual game that you can do easily on the beach or whatever you do on your vacation. It's different layers on this, but again, Conflict of Nations, we have been able to grow throughout the last year, but also both Bytro Labs games, Supremacy have continued to perform solidly, and I'm pleased to see that for strategy games challenge in Q3, we have been able to spend relatively on good levels.
Got it. Interesting to hear that Storm8 seems to be stabilizing after tough comps last year. Is there any specific metric or all games in the portfolio performing similar, or any specific market that is doing better?
I think that - I mean, they have two main products. They are both quite stable. Of course, it will vary from one month to another between these games, but they are solid contributors, both Property Brothers Home Design Makeover. That is very pleasing to see. Further, we are excited to see the new Storm8 product coming out in quite a short time, hopefully at around the year-end. That will be exciting for us, and hopefully that will be a growth contributor for Storm8.
Got it. The game pipeline seems to be more bigger than normal looking into 2022. What kind of risks do you see here that these games won't perform? I know that you say you only invest where it works, but if you can comment anything on the risk in this game pipeline, is it new genres, new type of games or iteration of existing games?
That's a good question. We have been improving our performance in terms of what we call engine shares, where you basically take an engine from one game, not necessarily only in your own studio, but we are collaborating between studios, so that we have more products built on already proven engine.
This is a very, very important and significant synergy that we have been significantly better in achieving, because obviously taking a proven game, the engine that drives a proven game, if you take that and put it into a new setting or a new setting, you both gain time to market, you increase the probability that it will be a success and that the investment obviously is much, much lower needed to take a sophisticated game. T he sophistication of the game is also higher because with a game that has been proven already has been updated on a weekly or bi-weekly basis for, in many cases, several years. We get a more advanced product with less investment, shorter time to market.
This is definitely one of the major achievements that we have seen coming out of the Stillops platform, our business synergy and organic growth platform, the last couple of years. I think that we will see next year even more engine shares. Of course, we also allocate capital to more innovative products in the sense that it's not part of engine shares. I mean engine shares, you could argue that we're not innovating to the same extent, but innovation could also be very expensive experiments. We are talking a lot about a controlled and incremental approach to being innovative as well. We have processes in place to figure out where we would like to experiment and make completely different games.
Yeah. I think we are improving the pipeline quality in that way as well. That is, I mean this we started several years ago. I think that what you see now is the direct effect of our improved Stillops platform that we have, basically.
Got it. Maybe last on the M&A market, I mean you mentioned it a bit but can you say anything about your M&A pipeline? Is it growing, and are the discussions on price and/or anything else the targets?
I mean, we there are 300-400 companies that we will be consolidated in the market by the consolidators, which is say 20-30 companies, us being one of them. That will happen the next coming three, four, five years. I expect the pace, you can see already, I would say, that the pace is slowed down a bit because due to the multiple developments on the public-listed companies, but that will even out. I think public-listed companies will bounce back and I think private-held companies will go down in expectations. Then you have the necessary arbitrage between public and private-held companies. That is one thing. Secondly, I think that when that happens, the pace will slowly go up again.
As Andreas elaborated on, we think that if you take away the tactical, always very important aspects of financing, there is an appetite to invest in growth companies like in gaming, even though the sentiment obviously have been weaker for six or so months. I think also when IDFA, the question marks around the whole thing with IDFA is coming back, and the CPM things, the challenges when that is not only for us, it's for the market in general, w hen that is now becoming history, I think that will be good for the general sentiment around gaming.
Great. Thank you very much.
Next, we have Martin Arnell from DNB Markets. Your line is unmuted.
Hi, Jörgen and Andreas. Just on the comments you made on Storm8. Did you confirm that you see improvements year on year so far in Q4?
I didn't make that statement. What we have seen is that we acquired Storm8 in the beginning of 2020. Tremendous timing. We were just lucky. I mean, pandemic is not luck, but it came in handy for their growth. They grew by incredible 65%-ish in just a few weeks with tremendous return on marketing. Of course, since these users typically have their LTV 90 or so, 90-95% of their LTV, lifetime value, is within 180 days. Obviously, the massive amount of users that we took in has churned out now, so we have been able to stabilize the business.
Of course, it's a drop if you compare it to the massive growth that we had, but that is the whole thing. I think that it's good for visualizing to say that if we take away Storm8, Q3 over Q3, we would have been organic the whole group. That shows that it bounces back as a very natural effect of the massive intake. It's a very healthy and solid business. It's not. We have no expectations whatsoever that they would have continued to decline. It's just an effect that they took in so many users last year and their revenues were 65% up in a week.
We are very comfortable with the team, with their existing games, and not the least excited about their new game coming out very shortly.
Perfect. Thanks. Thanks for that color.
Yes, you said -
Sorry, Andreas. What? You wanted to add something?
No. I mean, you can simplify it. They overachieved their expectations last year and are at the expectations this year.
Okay. Yeah. Okay, thanks. Just on the marketing spending, n ow you've had some time to analyze the actual impact of IDFA. I'm just curious to hear sort of your key learnings and the surprises so far. Also, I think a few months ago, we talked about the Facebook situation, and we were discussing sort of the potential that they would change it back and make it easier for you again, and how has that progressed?
Well, as mentioned several times, we and others, I should say, have seen a gradual improvement very much played out the way that we have expected. We leveraged the fact that we did prepare ourselves building these kind of models that I mentioned one year prior to the actual change happened. We benefited from that, and we benefited significantly from the fact that we have for years been building and trying to be market leaders in how many different channels and how diversified mix of channels we're using for marketing. That definitely played out as expected in a very good way for us. I mean, we changed the majority of Facebook volume in just a week or so to other channels with unchanged high profitability.
I would venture that that is not many that could keep the profitability and increasing the spend. That played out as we hoped. The big surprise, of course, was that Facebook, in the first off the start with, encountered these challenges in their algorithm as widely as they did. I mean, that was a surprise for us, for our peers, and not the least for Facebook themselves. That was the big unknown that came in. We, as I said, through the fact that we have a lot of different channels, we managed that in a very good way. Our teams, our marketeers and analysts made a great job in handling that. I think that is history.
Again, we have experienced significant changes in marketing channels several times before, and we will do it in the future, even though not as big as this one. I'm sure that I know that this is part of our business, so we're not very scared or whatever word we should use for changes in marketing channels. That's why we have built this wide spectrum of channels that we master in many different territories as well.
For the moment, do you see it has stabilized when it comes to sort of switching channels or are you weighing back to Facebook or how should we look at it right now?
Yeah. Facebook has increased compared to when we moved everything away more or less, when it didn't work at all this summer. For two reasons, we don't go out with a split. It's for commercial reasons, we don't communicate how we allocate over different channels for strictly commercial reasons. We would love to have those from our peers. If you have them, please send them. The second reason is that it changes very rapidly. Literally from one day to another, we are changing on channel level, but also the combination of channel, product and territory are changing extremely rapidly. It will be very hard to try to communicate that in an efficient way, basically.
Excellent. Thank you, Jörgen. Just my final one on the cash flow. You have positive changes in working capital boosting a bit again here. What do you think, Andreas, going forward on how should we view the working capital impact?
Yeah, I mean over some period, depending on where you have that period, it's sort of, it grows, the working capital impact grows with more, you know, how the top line grows. Q3 has been this year and last year, the strongest sort of operating cash flow due to the working capital. That's because one of our biggest platform providers, they run their own calendars when they pay. They pay two times in Q1, 3 times in Q2, and then for some, but not all, 4 times in Q3, and then 3 times in Q4. They have a slightly different calendar than-
The rest of the world?
The rest of the world. Yes, that's how it works.
Perfect. Thank you for clarifying. Thanks. That's all for me.
There are no further questions at this time. I would like to now hand over back to the speakers for their final remarks. Over to you, speakers.
Thank you very much, and thank you for dialing in, all of you, this morning and providing us with some good questions. Thank you for today, and I wish you a great day. Thank you.
Thank you so much, everyone. You may all disconnect now. Thank you and have a pleasant day.