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Stockpicker intervjuar Media and Games Invests VD Remco Westermann
Stockpicker följer upp med en ny intervju med VD Remco Westermann då bolaget har leverat på många punkter sedan vår senaste intervju. Westermann går även in på mediasektorn som bolaget är starka inom och kommenterar utvecklingen under Q1.
Since our last interview in early December, MGI's share price has risen 150%. What has been the main driver of this increase in recent months?
– We are very happy for our shareholders that our share price has developed in such positive way and it is also good for the company. The reason for the positive development is, as always with shares, based on many different things. What we can say is that on the operational side, we had a very strong revenue and EBITDA growth in 2020 and especially also a very strong growth in Q4. Overall, we have grown at a strong CAGR of about 45% since 2014. In 2020, we grew 67% versus 2019. Additionally, the KingsIsle acquisition in early January was a very positive event.
Regarding KingsIsle, what attracted you the most with the company?
– KingsIsle fits perfectly into our strategy of acquiring strong multiplayer games with long sustainable revenue streams and lifetimes. KingsIsle has two strong massive multiplayer games, Wizard 101 and Pirates 101, with well over 50 Mio. registered gamers with player lifetimes of more than 5 years and substantial revenues that have been growing year over year. These are very strong IP’s that now are generating 90% of their revenues in North America and are only available for PC. We see a lot of additional potential in further game updates, in internationalization as well as in porting to consoles and mobile. Also, we like the great and very enthusiastic team. And we can already say now that we are very happy with this transaction.
The price you are paying equals an EV/EBITDA multiple of 5.8 – 7.3x, depending on KingsIsle's growth in 2021. Compared to other acquisitions in your peer group, this is a very low multiple. Will you also pay higher prices in the future?
– The utmost important criterium for us is that an acquisition makes sense. This means that an acquisition must have strong assets, synergies, portfolio fit, a strong team, being based in the right geo and most important, it must be creating accretive value. We like to acquire targets that are distressed as well as targets with positive EBITDAs. In each case we look at the economics. In case of a distressed target we want to earn back the purchase price plus investments and burn rate within 24 months. For EBITDA positive cases we want to pay a fair price. As we are looking at the economics and want to do accretive deals we have set as an internal target to not pay more than 6x EBITDA. This EBITDA multiple however can also include cost and revenue synergy effects, which means that we can pay e.g. 8x EBITDA if there is enough synergy in the case to compensate the 2x higher EBITDA. We are currently observing that there are more and more deals with very high multiples. This is however mostly for gaming companies with over Euro 50 million annual revenues. This is based on the fact that there is high demand for such targets while there are not many available. However, there are thousands of targets available that are generating less than Euro 50 million revenues and there the competition for such targets as well as the multiples are much lower. For that reason, we are and will further be focusing on smaller targets, which however can still be very substantial and accretive as we have e.g. shown in the KingsIsle case.
Turning to the recently published Q4 Report. What were the drivers for the strong quarter?
– We saw overall strong revenue growth and increased profitability. In the games segment, this was mainly due to numerous updates and events in our games as well as more efficient user acquisition based on our media USP. The strong Covid effect from Q2 also has a positive effect long term due to the new players that we were able to onboard. The stay-at home lockdowns from Q4 however are hardly affecting numbers anymore according to our data, probably because most people are not obeying the rules anymore. In the media sector, we were able to establish further strong partnerships and have seen strong organic growth especially in the programmatic area. Moreover, further cost synergies were realized in both areas.
Let us stay with the media segment for a moment. Can you briefly describe MGI's business model in this area?
– For gaming there are two main success factors; (1) content to make the games attractive and (2) user acquisition to get more players into the games. Four years ago we decided -as we were not happy with our external media partners- to start also acquiring media companies via our buy & built strategy, similar to how we built critical mass on the gaming side, with the target to build a media company that understands the requirements of gaming companies and can acquire new users in an efficient way for a gaming company as we can sell the ad-spaces of a gaming company in the best possible way to get the most out of them. An integrated gaming media combination gives us a very strong position with a strong competitive advantage based on the synergies between the two segments. In addition to a strong increase in efficiency of our own user acquisition, the media segment has also developed into a profitable and strongly growing business area with third-party customers which are mostly gaming companies. In 2020, we generated more than 81 billion impressions from our programmatic advertising business. The programmatic accounts have grown by 35% in 2021, while at the same time we see a strong retention rate of 85% for accounts generating more than USD 100k revenue per year; both numbers show that our customers are happy and extending their budgets as well as that our offering attracts new customers. Because MGI is active in the entire value chain in digital advertising, we have a special know-how in this area, which only a few other companies have. With our fully vertical programmatic media technology offering, we can offer full transparency and therefore optimal efficiency which other games companies such as e.g. Zynga or King appreciate. We are continuously investing in our technology and solutions to further strengthen our position and growth and have also developed Verve Edge, which is a cool solution and answer on identifiers such as IDFA from Apple being disconnected and allow companies that advertise best of class targeting.
In the games sector Embracer and Stillfront belong to your peer group. Who are your peers in the media sector and how is the media market developing in general?
– Like the games market, the digital media market is a high growth market. In fact, it is even growing faster than the games market. While growth in Q2-2020 was temporarily slowed down somewhat by the Corona pandemic -opposite to the gaming sector-, industry experts such as eMarketer expect the worldwide market for digital media to grow to over USD 520bn by 2024, corresponding to a CAGR of more than 12%. Our peers in the media segment are predominantly US companies such as PubMatic, Viant or TradeDesk. These companies are all specialized in media. The closest peers however are AppLovin and IronSource. These are two companies who, similar to us, combine games and media, and show the huge synergetic effects between the two. They however started as a media company first and then added the gaming side, while we do it the other way around. AppLovin, who just filed its IPO documents in the US, for example, acquired MachineZone.
You recently commented in a press release that MGI started strong into 2021. Can you elaborate on that and give us a hint about what you have in store for the coming months?
– As already mentioned, we did two acquisitions in January 2021: the acquisition of KingsIsle as well as the acquisition of Nexstar Digital, a programmatic media company specializing in connected TV. With these acquisitions we basically already can tick the box on our minimum annual revenue growth target of 25-30% as well as on our minimum annual EBITDA and EBIT targets. This is however not saying that we will not go for more. As we have proven in 2020, we can grow much faster. We have a number of acquisition targets in the pipeline that we are currently evaluating and expect up to 3 further acquisitions during the year. These include targets in both media and games. We have also several strong organic growth drivers, such as game launches, game updates and DLC’s in the pipeline. One step has already been taken with Trove. Here, we successfully launched Trove in South Korea together with our publishing partner Aprogen Games. We are also working on bringing Trove to the Nintendo Switch universe, which will happen in 2021 and we can now already say that the KingsIsle acquisition was a very good one; they are tracking well above plan. With Heroes of Twilight and Golf Champions we also have two upcoming mobile game launches, that we got from Tripple-A publishers at the beginning of the year. On top, we are currently working on numerous other projects in stealth mode. So, we expect it to be an exciting year 2021.
Viktiga nivåer i Media and Games Invest
De senaste månaderna har vi fått ett antal intressanta köpsetuper i Media and Games Invest (M8G) men nu har köparna tydliga problem...
Rapportlyft i Swedencare
Handeln på Stockholmsbörsen var avvaktande på torsdagen.
Media and Games Invest rusade på förvärv
Stockholmsbörsen noterades högre på måndagen i en lugn handel då Wall Street håller stängt.
Köpflöden i Media and Games Invest
De senaste handelssessionerna är det köparna som helt dominerat i Media and Games Invest (M8G) och nog ser det ut...
Stockpicker intervjuar Media and Games Invest VD Remco Westermann
Stockpicker fick en pratstund med Remco Westermann, VD Media and Games Invest, i anslutning till bolagets nyligen publicerade kvartalsrapport.
Can you tell us a little bit about yourself and your background?
I am managing Media and Games Invest (‘MGI’) as its CEO for over eight years now. Following my studies in business economics, I have more than 25 years of professional experience, thereof more than 15 years in the mobile and online entertainment industry. Here, I worked several management roles, for example at Sonera and founded the listed Bob Mobile AG (today Cliqdigital AG).
In 2012 I entered the dynamic and fast-growing market for games by acquiring 100% of the shares of gamigo AG from Axel Springer, which was integrated into MGI in 2018. Since 2013 we have been building a fast-growing online games company utilizing a successful M&A strategy.
Tell us briefly about Media and Games Invest. What is the company doing?
You've been listed in Sweden since the beginning of October, in parallel to your original listing in Germany. What caused you to come here and what is your experience so far?
In recent years, a strong gaming cluster has developed on Nasdaq Stockholm. This includes successful companies such as Embracer, Stillfront and Paradox, whose share prices have risen between 230% and 1,117% in the past three years. Gaming is one of the hottest topics on the capital market in Stockholm and many investors are familiar with the gaming business. This applies to both institutional and private investors. Our capital increase, which we issued together with the listing, was accordingly three times oversubscribed and we have convinced strong long-term investors such as e.g., UBS, Skandia and Atlant of our strategy. We have already been listed on the Frankfurt stock exchange since 2018, however, we have come to the realization that the affinity of German investors for gaming has been rather limited so far. As such it is a very refreshing experience to now have the Swedish listing, which also had an international impact in, e.g. the UK and the USA. The visibility of MGI has increased significantly due to the listing on Nasdaq Nordic.
Which ones of the Swedish Gaming Companies do you compare yourself to most of all?
The gaming market is considerable, each gaming company has its own characteristics; we are not 1:1 comparable. But I would assume that Stillfront is the closest to us, followed by Embracer. Both are pursuing a buy & build M&A model, which we also do with now well over 30 M&A transactions in the past years. Stillfront is more comparable from a gaming portfolio perspective with its free to play MMO’s. Embracer, however, has, by acquiring Koch Media, also invested in getting more control over its distribution. Something we also do by acquiring media companies, with the difference however, that we only do digital distribution. Also, Embracer has recently acquired an influencer and a PR company to further strengthen the distribution. We also strongly believe in influencers since they have a positive and strong impact on game launches; we acquired its first influencer business in 2017. Stillfront and Embracer were, however, already much earlier listed on the Swedish Nasdaq and were able to translate their high valuations into M&A, which gave them a head start. In terms of valuation, we obviously still have some room for improvement when you look at our peers. That of course, also offers an upside for investors.
What makes Media and Games Invest stand out from the competition?
Definitely our focus on a low-risk approach; while most game companies are betting on new game launches and take a riskier approach, we concentrate on MMO games with long-term revenue streams in combination with strong revenue diversification, limited maintenance CAPEX and a strong media unit for more efficient user acquisition. We also integrate the companies that we acquire, because we are convinced that by doing this the company can be managed more efficiently in the long run.
Besides your gaming operations, you also have a Media segment. What is the rationale behind this setup and what are the synergies?
We are first and foremost a gaming company but did decide a few years ago to add a synergetic media unit. To be successful in gaming the two most important factors are 1) content and 2) user acquisition. With a strong in-house media unit, we can purchase advertising for our games at a lower price due to the high level of expertise and data-efficiency, and at the same time sell our own advertising space with a higher margin. Thus, we win on both ends of the value chain. In addition, we also generate revenues and good margins from other advertisers, thus also spreading the risks here.
The ongoing Covid-19 pandemic has been a boom to the gaming industry. Have you noticed a renewed increase of user inflow, now that the second wave of infections is hitting many parts of the world?
We have seen a significant positive effect resulting from Corona in Q2 of 2020. With strict lockdowns, our user base played longer times and spent more. On top of that, we were able to generate a considerably larger number of new users than in normal times. While the effects of the current lockdown light are not as strong as in spring, we see that the majority of the new players joining us in Q2 continued to play our games during the strong third quarter and that they are still very active also in the fourth quarter. This coupled with a lot of activity in our games portfolio, gives us tailwind for an even strong fourth quarter.
Is there a difference between the users that you have acquired during the pandemic and your “regular” users? Do you expect them to stick around also after the Covid-situation has normalized again?
It is still a bit early to say, but as far as we can judge now, the new players added during Q2 show similar behaviors and uptake on spending just like the players who joined before Covid.
You have an outspoken M&A agenda and you just placed a bond of 80 Meuro successfully. Should we expect any deals in the near future? In which areas do you want to grow primarily?
Yes, we are very happy with the placement of the bond, which we will partly use to refinance our old gamigo bond that had a substantially higher interest rate. Before we raised the bond, with the listing on Nasdaq First north Premier, we also raised SEK 300 million equity; as a result, we now have more than 60 million euro free cash to take advantage of M&A opportunities. Our M&A focus is on gaming, our current top five targets include four gaming companies and one media company.
Stillfront recently stated that they are expecting higher M&A multiples for 2021. Have you noticed a similar trend in your discussions with potential takeover targets?
Multiples are, as we see it, very much related to the size of the M&A targets. For the targets that we are focusing on, with below 20 million euros in annual revenues, there is still a multitude of targets available and we don’t see multiples going up. However, we see rising valuations for the larger targets. With Stillfront and Embracer and many others focusing on larger acquisitions, they start to get in competition with giants such as Tencent and Ubisoft who are also focusing on these targets.
Five years down the road – what will Media and Games Invest look like?
We will continue to do what we are doing now, growing via a combination of M&A and organic growth. Historically we have been growing with 40+% CAGR, for the future, we expect a minimum of 25 to 30% per year with a possibility of more. It is for us, however, very important to keep our low-risk focus as well as our focus on profitability. So, it’s not about growth at any price. It would make me proud if we can grow the company to the size of a unicorn or even a bit larger.
Last but not least, why should one consider an investment in Media and Games Invest?
We have a strong track record of profitable growth since we started this strategy 8 years ago. We have had more than a tenfold increase in our revenues and grew our EBITDA from negative to 25 million euros within the last eight years. Now, being much larger and with our great games portfolio as well as our access to capital markets we are very well positioned in the gaming market and ready for further growth. On the other hand, our valuation in comparison to our peers doesn’t yet reflect this fact. We welcome investors that want to join us on our journey!
Kan dubbelnotering lyfta spelutvecklaren?
Den tyska spelutvecklaren vill nu försöka haka på framgångssagorna Embracer, Paradox och Stillfront.