If you met us earlier, you may remember that the story of how we got to this point backdates to 2002, 20 years ago. Think about that journey in context of evolution of gaming, and specifically mobile gaming. That's been a big part of my focus area since the start. When we zoom in to our 2021 results, for sure, I feel proud of our continued success. In the coming slides, and in a moment, we'll be unpacking our last year in more detail. Now before diving deeper with the numbers, a quick reminder of Huuuge's mission. We are building a network, and we believe it is way more fun and engaging to play together, and we are passionate about creating new experiences.
Our mission is not a 12-month adventure, but a mission for a global company. Thanks to our 2021 efforts, we can say that the company has never been in as good position as we are today to deliver further success. Look at the numbers you see on the screen. Fact that Huuuge delivered $374 million revenue last year, and we did our biggest acquisition so far when we acquired Traffic Puzzle assets, and it took big steps forward with Huuuge Publishing and lot more. We did that all of that in spite of all the macro and market turbulence. This speaks a lot of one of our core strengths. Team Huuuge is resilient. In environment that is very dynamic and evolving fast, one has to remain humble, hungry, and resilient to succeed over long term.
With that, let's now zoom in with 2021 details. JB, please, mic is yours.
Thanks, Anton. Morning everyone. To begin with, let's look at core franchises. As a reminder, we're really looking at social casino products here, Huuuge Casino and Billionaire Casino. As you know, the whole sector has started to show signs of maturity, and thus we are following suit, mirroring the industry around us and focusing on profitability and the longevity of our core portfolio. We've seen 5% year-on-year growth in 2021. That compares to 24% year-on-year the year prior. In essence, we were starting from a very strong base. In a weakening environment, this is a result that's comparable to industry. We've delivered our continued growth by monetization optimization. This is the same strategy you've been hearing about for a couple of years now.
We effectively saw ARPDAU, average revenue per daily active user, grow by 38% year-on-year, and this is a function of two things. The first is the optimization of live operations and time-limited events, effectively offering more compelling opportunities for payers to pay. The second function is the churn of non-payers, so we're losing low-quality users. Effectively, the denominator goes down, the numerator goes up, and we see 38% year-on-year ARPDAU improvement. Next slide. We view these games as games with more than a decade of revenue potential. For Huuuge Casino and Billionaire Casino, we believe these games have multi-decade life cycles. Their underpinning mechanics, i.e. slot mechanics, have been established for hundreds of years already, and our games leverage them in the most optimized way.
These games are by definition evergreen, and we're focusing on doubling down on longevity, growing our sales margin in the near term, and focusing on product sustainability for years to come. As such, you can see that our user acquisition as a percentage of revenue reflects that of a maturing product. In Q4 2021, we saw 20% of our revenue allocated to user acquisition. Compared to Q4 2020, that number was 30%. This, to us, represents a high profitability, long-term sustainable product opportunity. Next slide. The opposite story is true for our new franchises. At Huuuge, we're taking a portfolio approach to growth and profitability, and we're seeing new franchises delivering growth and core franchises delivering stability and profitability. We're looking at the revenue profile here of our new franchises as a percentage of total company revenue.
We've seen the proportion of revenue coming from new games double year-on-year for the last three years. As of end of 2021, 12% of the company's revenue is coming from new franchises, and this is a successful result for our revenue diversification strategy that we will continue pursuing. In absolute dollar terms, new franchises contributed $45.4 million to the overall company P&L, and 75% of this stack of revenue comes from Traffic Puzzle. It is the main growth engine for our business. Next slide. Zooming in a little bit on the new franchise revenue stack. As mentioned, approximately 75% of this is Traffic Puzzle, and you can see this in the red bars in front of you. TP has grown systematically and predictably, quarter-on-quarter since we launched the game fully. Since the acquisition, we're very pleased with the results.
Most of this incremental scale has been driven through marketing. We see in the gray bars that the revenue makeup is much more volatile. This is by definition the nature of new product revenue. We are spinning up testing and sunsetting new products every quarter or two, and so you should expect to see high volatility in the gray bars. We're constantly launching new products. Next slide. To dig in a little deeper on TP, as of the end of 2021, more than 200,000 players, unique players, played this game every single day. Compared to the year prior, that's an improvement of around 120% versus Q4 2020. This continues to be our most promising product and also our most promising franchise.
I'm pleased to announce that we're working on a second game within the Traffic Puzzle franchise, effectively using the same playbook that we employed for Huuuge Casino by developing Billionaire Casino. We hope to see similar results. The primary constraint of the product as of today is on the product side rather than on the marketing side. Specifically, we're struggling with difficulty balancing, or that is to say we were until recently. We've developed an in-house proprietary tool that allows our games' difficulty to be balanced in a way that retains players for longer. Too hard, players get frustrated and churn. Too easy, players get bored and churn. Finding the sweet spot is the lifeblood of longevity in these games. By the end of Q2, we should see notable increase in long-term retention. Next slide.
With that, I'll circle back towards the end of the presentation, but for now, let me pass the mic to Grzegorz Kania, who can take you through our financial update.
Thank you, JB, and good morning, everyone. I'm very happy to be here with you for the second annual report's earnings call as a public company, and yet another year of double-digit growth of both top line and the bottom line. As you can see on the slide, and also as previously discussed, the top line increased by 12% year-on-year, reaching $374 million in the year of 2021. Our adjusted EBITDA increased double digits of 12% to $64.4 million, reaching a stable 16.2% adjusted EBITDA margin or margin on the same level as last year.
Similar was the user acquisition investments, basically on the same level as 2020 when compared to revenue, 35% of revenue in 2021, and 34% of revenue in 2020. In absolute terms, an increase of 17% of our investments in marketing up to a level of $130 million. Quick look at the last quarter of 2021. The revenue was relatively stable on the level of $89 million in quarter four of 2021 versus the last quarter of 2020, where it was on the same level of $89 million.
Although worth remembering is that in the last quarter of 2020, we've had a couple of titles which we sunset during the year of 2021, and of course, that also affects the year-on-year comparison when looking at the revenue of last quarter of 2021. User acquisition expenses declined by 34%, which is basically a result of completely different phasing of our marketing budgets in 2021 versus 2020. As many of you will certainly remember, our user acquisition budgets in the year of 2020 were spent mostly towards the end of the year in Q3 and particularly Q4. That's why you saw $40 million invested in user acquisition in the last quarter of 2020.
The exact opposite was the case in the year of 2021 when our user acquisition marketing budgets were focused on the first half of the year, and that's why you see $26 million spent in Q4 2021, and a decline, as I said, of 34%. That, of course, led to a substantial increase of our adjusted EBITDA for the last quarter of the year almost 7x higher than the adjusted EBITDA for the last quarter of 2020. In absolute terms, the adjusted EBITDA for Q4 2021 was $20.7 million. Maybe a deeper dive into our results on the next slide. Revenue, the main driver for the revenue growth was, of course, our new franchise acquired in April 2021, Traffic Puzzle. A lot of that has already been discussed by JB.
We are particularly happy to see the dynamics of the title. When it comes to cost of sales, just a reminder, that's a function of revenue. It's mainly platform fees to the distributors. The user acquisition expenses I have discussed on previous slides, it's been on a relatively stable level when it comes to user acquisition expenses as percentage of revenue, although worth saying much more, proportionally much more have been invested into ramping up of our new titles, and that's why, as also already highlighted by JB, the proportion of new titles in the revenue of Huuuge in 2021 was 12%.
When it comes to our general sales and marketing expenses, we see an increase year-on-year, which is driven primarily by development of our in-house marketing and the marketing teams and competencies. As you see, on a quarter-by-quarter comparison, Q4 was already 19% lower than Q3 2021. Similar trends can be observed in our general and administrative expenses. A substantial increase year-on-year related to growing headcount and the employee-related costs for the stock option program as well as higher depreciation and amortization expenses.
With those come first of all from the acquisition of Traffic Puzzle and the amortization of the IP rights, and the other one contributing is the lease contracts for our new offices in Warsaw and Tel Aviv. Again, when you compare the last quarter of 2021 to the first quarter of 2021, you'll see a decrease of 12%. Maybe a quick look at our reported to adjusted profitability reconciliation. The only reconciling item for the adjusted EBITDA is the cost of our employee stock option program. It amounted to $11.8 million in 2021 versus $3.8 million for 2020.
This is of course related to our stock option grants for the last quarter of 2020, and also made during the third quarter of 2021. When it comes to the adjusted net results, of course, ESOP is one of the reconciling items, but the other one, the major one, this year, as much as last year, is the revaluation of Series C shares. As you certainly remember, the revaluation of Series C discontinued after IPO, so on the IPO, the preferred Series C shares were converted into common and recognized as part of the equity. The $39 million reconciling item that you see on this chart is attributable to Q1 only.
Of course, without that $39 million of cost, our adjusted net result would be positive. When added to the ESOP cost of $11.8 million on top of it, we land at adjusted net result for the year of $41.1 million, which gives us the adjusted net result margin of 11%. Quick view at the balance sheet. Nothing unusual, nothing you wouldn't be aware of from our previous calls. Non-current assets increased due to acquisition of Traffic Puzzle as well as the new contracts for the office leases in Warsaw and Tel Aviv. The current assets increase is attributable to funds raised during the IPO, approximately $100 million net of the cost and stabilization activities.
Of course, the equity turned from negative $96 million to positive $226 million due to a combination of recognition of Series C preferred shares as equity, no longer liability after conversion to common. Plus, of course, the funds collected during the IPO, the issuance of shares upon the IPO, which brought us $100 million of equity. All in all, net assets positive $226 million. Very quick overview of cash flows for 2021 and 2020. What was a positive factor for the cash flow generation in 2020 turned to be a negative factor for cash flow generation in 2021.
That's why you see such a decline in operating cash flow from $73 million in 2020 to almost $30 million in 2021. As I said, the user acquisition expenses, which were spent in the last quarter of 2020, were mostly contributing to a positive working capital impact in the cash flow of 2020. However, they turned to be a negative the working capital impact in 2021 as the bills for some of those marketing expenses had to be paid in 2021. Similar effect goes to certain accruals for costs that were incurred in 2020, but paid in cash in 2021.
Also one of the bigger factors contributing to the net operating cash flow negatively to the net operating cash flow in 2021 was settlement of the Washington case of $6.5 million that was paid upon the approval of the settlement by the court in 2021. All of those factors, as said, contributed to the fact that in 2021, our cash flow from operating activities was substantially lower than the cash flow from operating activities from 2020. The main impact on investing cash flow is, of course, the first tranche of payment for the acquisition of Traffic Puzzle, as well as investments in software, high investment in software in this year versus last year.
The financing activities, of course, affected or impacted mainly by the funds collected during the IPO. $96.6 million financing cash flows in the year of 2021. As of the end of 2021, our cash on the balance sheet was above $200 million. Maybe the concluding slide for the financial results would be a look back at the last five years, where you can see the development of our revenue from $152 million in 2017 to $374 million in 2021, accompanied by a growth of our adjusted EBITDA from negative $4 million in 2017 to $64 million in 2021 with an adjusted EBITDA margin of 17%.
Of course, the results of diversification of our revenue sources, in the middle of this slide showing the growth from nothing in 2017 through 1.36% up to 12% in 2021, which is already a substantial number. Maybe also before handing back to JB, maybe also a slide that is just very fresh, like straight from the oven. About two hours ago, we announced commencement of our share buyback program. As we announced earlier this year in February, the board of directors approved the buyback program for Huuuge, and we will be–
Starting from today, we will be looking to buy up to 2.5 million shares back for a maximum price of PLN 40 per share, and we will be allocating the maximum amount of PLN 100 million for the whole share buyback program. The share buyback will be conducted for approximately one year until the 31st of March 2023, and of course, according to the regulations of the Warsaw Stock Exchange, the amount of shares bought back during a single trading day will not exceed 25% of the average daily volume traded for the last 20 sessions. As said, starting today, and this was communicated a couple of hours ago. With that, I would conclude the financial update section and hand back to JB for 2022 highlights.
Thanks, Grzegorz. Next slide, please. To begin with, we'll discuss publishing. I'm very happy to say that we've been successfully executing on Publishing 2.0, which is our strategy that sources inorganic growth opportunities at very favorable economics. I'm very happy to say we've fully integrated DeFi and College Love Game. These are two of our more recently published deals, not our most recent, but most recently integrated. We're now scaling both of these games via product and marketing improvements. We have an active pipeline of 16 new opportunities being processed. However, it's worth noting that for the foreseeable month or two, we're expecting lower than expected conversion rate on our publishing pipeline simply because of instability, geopolitical instability within our team, which is based in areas that have been partially affected.
That said, all the games within our publishing division are still early stage, with an average revenue of around $4,000 per day, or roughly a $1.3 million run rate, on an annualized basis. We expect this number to improve over time, but ultimately, the real measure of success for our publishing division is our ability to convert some of these published deals into full acquisitions, much like Traffic Puzzle. Next slide. In addition, we're also building new games. We are a game building company, not just a games operations company. Although we do well with both, our HuuugeX division based in Helsinki is dedicated wholly to the building and release of new products. As you know, we make it a policy to not discuss early stage new products until they have sufficient maturity and predictability to speak with confidence.
As such, we won't dig into any of these games on a deep dive basis. However, it's worth noting that we have three active products under development, varying levels of maturity, plus a handful of new frontier technology developments, currently underway. You'll hear more about those in a moment. Next slide. To summarize for 2022 is really an investment year for us. For core franchises, the focus is going to be on ensuring sustainability and longevity within Huuuge Casino and Billionaire Casino. That means making investments in technology, systems, and the game economy. At the moment we're extremely proficient at retaining our most valuable players, those with lifetime values of more than $500. Those constitute the vast majority of our revenue makeup, many thousands of players within those buckets.
They have extraordinarily stable retention curves, and we see higher churn in the user base coming from people who've never paid or have paid very lightly, and therefore are low-value users. We're effectively trying to solidify the future of success of our two core games for another decade. For Traffic Puzzle, again, we're primed for significant double-digit growth once again in 2022. Investment in a second product within the franchise should be straight out of the Huuuge Casino, Billionaire Casino playbook and will establish the future of organic growth for the company in the near term.
On the new franchises front, we're establishing the future of game design for Huuuge by exploring the Web3 space and launching new games from our HuuugeX division, and also further investments in a literal sense in our network of publishing products guarantees us the future of inorganic growth, or at least with a high likelihood of success. This is our view. 2022 should lay the foundations for the years ahead, and we want to set expectations as such. With that, I'll pass the mic back to Anton, who can wrap up for today.
Thank you, JB, and there's one more thing if I can get the next slide, please. We have more in the pipeline, Welcome, Web3, and Huuuge Hello. I'm very excited to confirm that we are already actively building games and products, embracing blockchain and the ongoing Web3 evolution. As a game designer, I haven't been equally excited of the creative possibilities for a long, long time. This is because, blockchain offers a lot of room for innovation and to go the next 10x or 100x in the coming decades. Innovation is the key to outsized returns.
We have a lot more to talk about our Web3 plans a bit later, and today, again, we wanted to confirm that we are already highly active and that the first release is what we call Huuuge Live, a new social gaming platform offering variety of games, fun live tournaments, tokens, and much more. Now it is time for Q&A. Thank you for listening. Your questions and feedback would be much appreciated.
Okay, thank you. In order to ask a question, you can click on raise hand button so we can unmute you, or you can type your question in the Q&A chat. We already have two questions there. Maybe first one the shortest one. The cost of labor in fourth quarter, excluding stock option plan fell both year-over-year and quarter-over-quarter. Decrease quarter-over-quarter was significant. Can you please explain?
Yes, maybe I'll take that one. That's indeed true that labor costs for Q4 2021 were lower than, let's say, normal. This is due to the effect of catching up with the annual performance program. The results of Q4 were not as high as expected, and therefore, the amount of bonuses to be paid for the year of 2021 will be much lower than anticipated from the previous quarters. Very opposite was the case of 2020. Our last quarter of 2020 was actually a fantastic one, therefore, we had to catch up with a higher bonus accrual and that's why when you compare Q4 2021 to Q4 2020, you see that, let's say, abnormal situation.
Of course, the same applies to the comparison of Q4 2021 with a release of the bonus accrual to Q3 2021, which is, you know, having the bonus accrual recognized in line with anticipated results for the full year.
Okay, thank you. I can see Ken Rumph from Jefferies, he wants to ask the question on his own. Ken, you can ask the question. Magda, can you please unmute Ken?
Hi. Hello, everybody. You can hear me?
Yeah.
Hi. Okay. I don't know if I can ask the question as well as I wrote it, but I'm sure it's a common one, which is, you describe the social casino games as mature but sustainable. I'm sure the question many people have is, we've seen a rapid decrease in the total number of users, and I get your point that, you know, the paying users are the important part, but the non-paying users form part of the social experience. Is it really possible to sustain profitability from a dwindling player base by extracting more money from the paying users? Surely there's a limit to that.
Related to that, I wanted to ask, is what we saw in 2021 kind of the template for the future, the same kind of level of reduction in DAUs and installs, or do you think there was a kind of unusually high level of decrease in 2021? Thank you.
Sure. Hi, Ken. Sorry to have missed you at GDC, by the way. I did catch you in the lobby, I think, once. Good question. Let me cover the first aspect first, about the user base and the stability of the user base. As you know from previous calls, across the entire social casino category, we're seeing a user base that is in a decline state. This is one of the most mature categories on the App Store, and that comes with pluses and minuses. The pluses, of course, that these players monetize extremely well. The minuses, of course, that less users are flowing into the category in aggregate. We've been in this state as a category for a couple of years now. It's not a new phenomenon.
However, you're right to observe that Huuuge has seen overall player base decline in the last year or so beyond the rate within the wider category. I think I did scratch the itch a little bit in my answer about payers. We do see astonishing stability in those most valuable players of ours, and that's really where the future of this product lies. There are outsized returns from a small group of people. I say small, it's still many tens of thousands. But those really do drive the entire category, and I'm happy to say that our games, via their social connections, tend to retain those users better than competitors. However, those users who don't pay or have never paid, you're rightly pointing out they do leave our ecosystem. It's important that we do have a healthy number of those players.
We're a fundamentally social product, and without an ecosystem of an active player base, you do lose some of the network effects therein. We're gonna focus more in the coming year or two to try and retain some more of those users more effectively, not least because of those network effects, but also because we recognize the opportunity to grow our ad monetization revenue stream. For those people that we identify as never having paid and therefore are never likely to pay, there is still a value opportunity in real revenue terms by serving ads in a very smart way. This is something we're actively pursuing. To answer your question, yes, disproportionate levels of DAU decline. However, revenues are stable for the long term, and we recognize that by trying to slow that decline, we may actually bolster revenue through ad mon.
Ken, would you mind? I've spent 15 minutes there rambling on. Can you give me the second half of your question again? Or perhaps Anton, Grzegorz?
Yeah. I'm also thinking, the second part-
It was about the DAU and DPU trends in 2021 and the likelihood or, you know-
Yes
The similarities of future trends
Okay. Yeah, fair enough. The answer to that is a difficult one to give. We expect a lesser DAU decline simply because by definition many of the quote-unquote low-hanging fruit have left the ecosystem in recent months. As such, those that are left are by definition more resilient and therefore more retentive. As such, we wouldn't expect the same level of decline to be sustainable for the future. Although it is also a function of the macro environment, but we are still tied to the category in which we operate. If we see that player retention and installs pick back up, we will benefit from the rising tide there too. It's not a great answer, but it's the honest outlook. The best things we can control are in-game economy and the player experience as a first-time user.
Those things have the greatest effect on early-stage churn, which is where most of our players churn from, and that's where the focus of the development team is today.
If I could add a final follow-up, just UA trends within social casino? Thanks.
Yeah, no, of course. I can speak on behalf of Huuuge here. We've taken a portfolio approach to looking at user acquisition, growth, and profitability, right? Rather than looking at all three metrics for every product that we have, we try to look at it in aggregate, and this will partially answer some of the questions I've seen pop up about Traffic Puzzle and our likelihood of breaking even. Simply put, we expect we see in real time, in fact, that the user acquisition dollars that we invest in Traffic Puzzle are the most redemptive of any product that we have, with the exception of a couple of our early-stage publishing products that are not yet at scale.
That means that on a portfolio basis, there's far more value to be unlocked by driving growth with stronger payback performance via Traffic Puzzle and any subsequent derivative products than there is by trying to drive growth through HCBC. Equally, driving profitability through HCBC is much more effective than trying to drive profitability in the short term through Traffic Puzzle. We've optimized both of our games in a way that best fits their character profiles and growth will be driven through UA primarily on TP. Perhaps a little bit less so, or at least in a stable state for HC in the near term. Profitability will of course be strongly delivered by HCBC as a result. Break even for Traffic Puzzle can be pushed further back in time, simply because that's the biggest growth opportunity today.
Thank you.
Okay. The next question comes from the line of Michał Wojciechowski from Ipopema.
Hello, guys. Do you hear me?
Yeah.
Yes.
Okay. Great. The first question may be regarding the guidance. Could you give us any financial targets for 2022, maybe starting with revenues? Should we expect a further decline in revenues like in the recent quarters or maybe some stabilization?
It's a great question.
Yeah
Anton.
If I may take the question about the guidance for 2022. I think that one lesson, I mean, it's probably not a lesson, but a reminder that the whole industry got in 2021 was that making any reliable prediction or reliable guidance for such a volatile industry with so many uncertainties is simply an exercise that doesn't bring you know much value to the investors. We've seen a lot of companies revising their guidance, some of them even couple of times. We've seen Ten Square Games, we've seen Playtika, we've seen Zynga, we've seen ourselves also not delivering the expectations we had towards 2021 at the beginning of the year or at the end of 2020.
This reminds us of how dynamic industry we operate in, how many opportunities there are, but also how many potential factors that impact our business in a negative way we have. We made a cautious decision not to guide on 2022 in any of the financial measures. I know that might be coming as a negative for the shareholders, but I don't see a value in hyping or being, you know, negative about the year straight after a year of so many dynamic factors the whole industry experienced. This is our approach. We want to deliver best possible outcome as also JB and Anton said, we want to set the base for the company to be ready to deliver future success.
We don't want to be trapped into our own expectations, with certain developments which are simply unpredictable.
Okay. Sure. Maybe you could give us some big picture outlook for inflation impact on your business. Should we expect increase in wages and how those could affect your margins, let's say, EBITDA margin in coming year?
Yes. Sure. First of all, I can tell that we operate in an industry where, you know, where salary pressure is independent of the inflation trends, and we've been making key salary adjustments in all of the markets that we operate constantly. You know, the year of 2022 is, yes, actually a year of high inflation. But in terms of our salary policy, it didn't come as a major burden. We simply this year we absorbed the inflation through standard salary increases, maybe one or two percentage points higher in Poland. But at the end, when you look at the U.S. dollar versus PLN rate, you'll see that this one or two percentage points are fully compensated by weakening zloty versus dollar.
When it comes to wages, I wouldn't say that inflation has had any particular impact on our cost base versus the practice of the company to adjust salaries on a constant basis. It does of course mean that there will be increase in salaries and wages.
Yeah, I think, Grzegorz, that's important point to underline, that we make most of our revenue in USD, and big part of our salaries are paid in zloty. At the moment, those exchange rates have been good to our bottom line.
Mm-hmm.
Maybe the one final question from me. As of the end of 2021, you had over $200 million. What's your current strategy allocation one year after the IPO?
Well, I think in the IPO we also communicated the 18 months timeline, and we've done one big acquisition, Traffic Puzzle. We are constantly exploring additional ones, and we've been highly active on the publishing space building our footprint. At the moment, yeah, that's pretty much the commentary what you will be getting to that question. Obviously today we also announced the SBB as one thing. I don't know, Grzegorz, if you would like to add or JB, anything to that?
No, I think that about the funds allocation, I think you've made it quite clear, Anton.
Okay. That's all from me. Thanks.
Okay. I will read the questions from the chat. Two questions from Maria. Should we expect any year-on-year increase in total UA to revenue ratio on the group level? Should we expect any major differences in spending between first half and the second half? What split between core and new titles should we assume? Maybe the second question, when did you start scaling up of Traffic Puzzle? Should we already expect quarter-over-quarter jump in UA spending on Traffic Puzzle in first quarter 2022? Do you reiterate your target for Traffic Puzzle to break even this year?
I think most of those questions were actually addressed by JB. I mean, starting from the last part regarding the Traffic Puzzle expectation for breaking even this year, indeed this was our expectations back two quarters ago, and couple of months ago. As JB explained, we took even more aggressive portfolio approach with optimizing our return on advertising spend, and we concluded that the opportunities offered by Traffic Puzzle in the portfolio of our games are high enough to grant delay of the break even by yet another year in order to secure the growth potential that Traffic Puzzle offers for our future business.
When it comes to the UA as a percentage of revenue, again, we, I think in the president's letter for Q3 results, we were saying that we are gradually going towards ROAS optimization. I mean, this is something we do for a long time. With that, I think that as a percentage of revenue, you can expect our user acquisition expenses to decline slightly with much higher proportion to be allocated to the new franchises, again, for the reasons explained by JB already. I think that most of that question, if not completely, was already addressed before.
Okay. We have, again, Ken Rumph in hand. Ken, you can ask your question.
Hello again. I wanted to ask about publishing, and obviously Traffic Puzzle was an example of a game that you published and then acquired. Can I ask something about the economics of the publishing deals that you tend to sign? Firstly, what kind of investment might we expect in a game that you're publishing? Is there a limit of how much you would invest in a publishing process in a year? And do the terms in any way sort of fix or limit the price that you might pay were you to acquire the game?
'Cause obviously what we would hope is you publish a game that's super successful, and you're then perhaps able to acquire it, for a price that's attractive to both sides, but from our point of view, particularly to Huuuge.
Yes, Ken, that's the most generous question I've been asked in a long time. I'm gonna answer at length. Yes, from an investment perspective, to answer the first part of your question, we tend to invest anywhere between, say, $100,000-$1 million, depending on the size of the product, the maturity of the game that we're publishing. Generally speaking, they're all very early stage products. They might have some existing revenue, but it's likely to be less than half a million dollars a year. In most cases, it's much less than that. I'd say the average investment check is somewhere between $100,000 and $500,000. The structure of that investment is not a direct equity check. It can take a couple of forms, but we're leaning towards convertible notes that convert upon a liquidity event.
You can imagine that to be runway for a year or 18 months of game development, that it represents maybe 20% of the overall fully diluted shares outstanding count at conversion, and usually will come with a valuation cap or a discount rate at conversion. With regard to the second part of your question about getting favorable economics in an M&A situation as part of the publishing flow, with most of the deals that we sign, we actually include a call option agreement that gives the company the right to acquire either the company or the assets of the company at a predetermined price.
They are triggered, those call options are in the money after hitting a certain revenue threshold, and of course, because Huuuge is directly responsible for the user acquisition spend for those games, we have a large influence over what the game's revenue is. That gives us a large degree of control and very favorable economics in an M&A situation. For me, that's why it represents the best value for money in organic funnel that we have. Hopefully that answers your question.
I think JB, I'd add that, the kind of a range, what it tends to be for the publishing deals at start, so there are exceptions. In certain instances, we've been exploring games that are already a bit more sizable than early-stage games. Usually, very much like you profiled, you know, 100K to 1 million size, but there are exceptions and
Yes. I think maybe one more point of info that might be useful from the M&A side aspect on the publishing funnel that we have, you can expect most of the deals to have a call option with a total company valuation of somewhere between $10 million and say $50 million, usually skewing towards the lower end of that range. Needless to say, those are triggered by revenue thresholds that represent very favorable revenue multiples on a kind of pricing perspective.
Well, I hope you see reason to trigger a bunch of them. Could I ask Anton, you mentioned Huuuge Live, and I'll go and have a try afterwards, but what am I gonna find there? Just give me an idea. I know you said you would say more, but what's in there at the moment?
It's live. Yeah. Thank you, Ken. We are announcing that the first title will be Huuuge Live. It's not live yet.
Okay. Right.
We just have to have a bit more patience before we can have lots of fun with it.
Okay. I'll keep the credit card in the wallet for now. Thank you very much.
Okay. No problem.
Okay. I will now open the line of Robert Wojciechowski. Robert, you can ask your question.
Hello. Good morning. Can you hear me?
Yes.
Thanks for taking my question, and I pretty much understand that it's hard to guess what the economic situation is going to be and how the category is going to evolve over the year. Given how the category and how the situation looks for the time being, if you could maybe just provide us with sort of your internal thinking about the revenue growth and EBITDA growth. I understand that you don't want to guide, but just some sort of a high-level perspective given assuming the category is not going to change anywhere from what we are seeing currently, are we going to expect a decline in sales and EBITDA level, single-digit growth, or double-digit growth?
The second one, a little bit related to this is, in your financial report, you sort of quoted the market assumptions for the overall category to grow by a single digit number over the next years. A little bit about whether you are thinking about Huuuge gaining or losing market share over the next year in that regard. Thank you.
Maybe I can cover the second question first, and then George can cover the first.
Yep.
With regard to the social casino market share, you saw earlier in the presentation, and you've heard us speak about this a few times before, I think, Robert, we're extremely keen to pursue a revenue diversification strategy, and that's not just product diversification, that's also genre diversification. Even within our own portfolio, you can see that the growth characteristics of Traffic Puzzle are drastically different to the growth characteristics of social casino products. Those characteristics really do mirror the categories that they represent. Match-3 is one of the fastest-growing categories as of today. Puzzle is one of the strongest and most performant categories as of today. This is why we believe that the diversification strategy makes sense.
It allows us to really pursue a portfolio approach, while still bringing users into our ecosystem, into our network, that are demographically very similar. The players of Traffic Puzzle are extraordinarily similar in terms of demographic attributes to those who play our social casino products. We see this as a network effects opportunity, and by combining both the growth and the profitability characteristics, we can kind of solidify the best outlook that we can as a company. As such, the primary focus will not necessarily be growing market share in social casino, but rather growing market share in gaming.
Mm-hmm. Yeah, maybe you know, again, the comments about outlook for 2022, I cannot possibly make an assumption that the category will not change. I mean, the whole 2021 is contradicting that assumption. It's difficult to say, like, ceteris paribus because there is no ceteris paribus anymore in this industry. The industry is changing, is evolving, is also trying to find the new definition. There is a lot of consolidation going on for very big players, also our competitors. There are new trends, as Anton also mentioned. We are exploring Web3. It's anything but unchanged, and it's difficult to comment, you know, what it would look like if nothing changed.
It remains to be, you know, seen how the market develops, though, and also one of the other questions regarding how the company performed in Q1 2022, which is about to finish in today's time. I can definitely say that it was a difficult quarter, and we will be publishing our bookings for the first quarter in just a few days next week. I would like to ask for patience, the person who asked about Q1 2022, for a few days, and we'll report our bookings for the first quarter, but it was a difficult quarter indeed.
Okay, we have a couple more questions on the chat. The first one, "How much did UA cost change after Apple IDFA? Do you expect any similarities in 2022? And what is your take on Google privacy scrutiny? Will it bring the same effect probably in 2023?
Okay. With respect to CPIs, we try not to speak too much about this because it's incredibly variable, and actually, we have no control over the media buying environment that really dictates how much an install costs. It's all competitive pressure. That said, IDFA did trigger increases in CPIs on both the Apple platform, for obvious reasons, but also within the Android ecosystem as demand that previously existed with Apple was rerouted to the Android ecosystem, primarily to Google. Those were difficult challenges to face in sort of the end of last year, the middle of last year. In Q1 2022, we're starting to see signals that CPIs are normalizing downwards, which is, of course, a very welcome change.
I think to set any expectations for CPIs over the medium term would be a mistake simply because of the lack of control that we have. In short, CPI trends are actually quite positive at the moment, and we're encouraged by that, but not pinning future growth on it. Maybe that. I can pause there.
Okay, so next question, "How did March go? how much better it would be than February?" I also had on a different chat a question about January and February.
Yeah, I think the answer was a bit more patience. The Sensor Tower numbers will be, or App Annie, telling more about our performance in Q1, but we are not commenting much more today.
True. On top of it, we don't comment on individual months. We will be releasing our quarterly bookings next week, but not really commenting anything on a monthly basis.
Okay, two more questions. First one is, "Are you developing new social casino games?
Well, we've never stopped loving social casino. There's like JB mentioned, we are a games building company. That's part of our DNA and how we look at new product concept development. There's always a lot going on, and sometimes it's a bit difficult to say exactly what is the genre of a specific concept. Certainly we love to utilize both social casino and casual gaming mechanics in creating new concepts. Yes, we've never stopped loving social casino, I would say.
Okay, thank you. On the chat, there is the last question to Anton. "How much satisfied are you with your current percent stake in the company? A lot of burden was attributed to your lock-up expiration, and some were expecting going down with the stake. While in your interview in February, you said something like the current price is too low and below the value. Any plan?
I guess those who expected me to dump my shares, that hasn't happened. I have a lot of love for Huuuge as a company as well and remain highly bullish on our long-term continued success. I believe the SBB we announced today tells a lot what we think of the market multiples and our current share price.
Okay, I don't see any further questions in the chat. You can always contact our IR if you have more questions. Now I will ask Anton for closing remarks. Oh, sorry.
Thank you.
There is one more question. No, it's thank you.
Okay. I guess no more questions. Thank you all for joining. Please remember to give us love, download our games. We appreciate your engagement, reviews, and in-app purchases. Stay tuned for more Qute action, and speak soon. Bye.
Thanks everyone.
Thank you.