Hi Remco and congratulations on a strong quarter!

How would you summarize the last fiscal year 2022?

– We had a very good year in 2022. With revenue of €324 million and adjusted EBITDA of €93 million, we ended the year at the upper end of our guidance, which we even raised twice over the course of the fiscal year. The strong 29% revenue growth is underpinned by organic growth of 18%. We continued to drive our strategy as an advertising software platform in 2022.

Remco Westermann

The strongest revenue driver was our advertising business and especially the new customers that we added. Additionally, the gaming division of our company was doing well, though at lower levels than during the COVID-19 pandemic. We streamlined our games portfolio by closing down smaller and less valuable games in-line with our focus on the advertising side of the business, which also resulted in approximately 50 layoffs. These measures also led to a one-time non-cash write-down of approximately €24 million, which has a negative one-time impact on our net result for 2022. We proactively decided to take this step in order to continue to focus on the stronger games that fit well to our growing advertising software business. Overall, 2022 was a very successful year in which we performed well and gained further market share, despite the macroeconomic headwinds that overall negatively impacted the advertising industry.

Can you elaborate a bit more on the strategic direction and explain to us how MGI has evolved over the past few years and what exactly the strategy will be going forward?

– When I bought gamigo AG from Axel Springer in 2012, we were a pure online games company with a focus on “massively multiplayer online games” (MMO). In the years thereafter we acquired several games companies to achieve critical mass. Over time, we also started focusing on casual and mobile games. However, to be successful in those games, such as optimizing user acquisition as well as selling the ads in the games at a favorable price, we came to the conclusion that we needed to build an advertising unit, as there was no advertising companies that were suited structurally to support us.

In the past four years we have built a programmatic advertising division via multiple acquisitions. While the original goal was to strengthen our own games business, it turned out that we took the right decision and to also fit the need of a large number of other gaming and also non-gaming companies. Demonstrably, the programmatic advertising part of our business is growing fast and has become the majority of our revenues.

Programmatic Advertising means the fully automated and AI-supported buying and selling of digital advertising space, digitally matching advertisers demand with publishers’ supply. This is especially important for buying and selling these advertising spaces as efficiently as possible, using data that enable the most accurate (privacy-compliant) targeting of the end user.

After buying PubNative in 2019, we quickly recognized the potential of Programmatic Advertising in combination with our games, through which we own a substantial amount of first-party data. As a result, we decided to build this area as a second pillar of MGI, with a much stronger focus on third-party business, instead of using it mainly for our own games as before, which led to the launch of Verve Group in 2020.

From then on, the strategy was to develop two equally important segments (Online Games and Programmatic Advertising) that would mutually benefit each other. In 2021 and 2022, Verve Group's Programmatic Advertising business performed much stronger than expected. Consequently, from early-2022 onwards we shifted more of our focus to Programmatic Advertising, but also continued to run our MMO games business adding significant data and USP to the advertising business. During 2022, we shifted the focus even more to Programmatic Advertising due to the continued strong performance and especially due to the great long-term potential we see in it.

MGI today operates a fast-growing and profitable advertising software platform and is mainly active in North America and Europe. Through investments in organic growth and innovation, as well as targeted acquisitions, we have built a one-stop-shop for Programmatic Advertising, enabling companies to buy and sell advertising spaces across all digital devices (mobile apps, web, connected TV and digital out of home) in a fully automated way, with the goal of making advertising better for all stakeholders.

The market environment changed drastically in 2022 and there was a material slowdown in advertising spending. What does that mean for MGI and do you expect this to continue in 2023?

– Advertising is indispensable. It enables companies to promote products and services to potential customers and target groups, strengthen the brand and generate demand. In short, it is an essential factor for successful business growth. End users also benefit from it, for example by being informed about products that are relevant to them or by receiving free or discounted access to content. Consequently, we are talking about a global market where revenue will exceed the one trillion euro mark as early as 2024. Within this market, the Programmatic Advertising segment is growing the fastest. In 2021, its share was around 51%, and by 2026 it is expected to rise to 61%, resulting in a CAGR of around 12%.

The difficult macroeconomic environment in 2022, with the war in Ukraine, rising inflation and interest rates, and fears of recession, has had a negative impact on companies' advertising budgets. Industry expert eMarketer expects 2022 to see the weakest growth of programmatic ad tech in the U.S. in many years, although this is still substantial at around 11%. By comparison, growth averaged 32% from 2018 to 2021. For 2023, eMarketer expects the overall ad industry to grow by about 10% globally and for programmatic in the U.S., our core market, to grow by about 17%. eMarketer also suggests that the ongoing uncertain market environment is driving advertisers to embrace the flexibility of Programmatic.

Stricter regulations, the efforts of major market players, and, most importantly, the fact that advertisers focus more on privacy and sustainability in their supply chains, are factors which are fundamentally changing the industry. Advertisers are turning away from highly fragmented supply chains that make tracking and ensuring data privacy difficult. They are looking for transparent solutions and more direct connections to publishers and their users. This is where MGI is particularly well-positioned with its own games and its consensus-based first-party data, as well as with its platform, which we built with the aim of covering the entire value chain between advertisers and publishers.

We are operating in a market that is growing strongly over the long-term, even taking into account current adverse conditions. As already indicated, the macro situation in 2022 has led to many advertisers cutting their budgets significantly. The resulting decline in demand for advertising has led to a negative development in the prices for advertising space (so-called CPMs). We and most other programmatic advertising companies monetize largely through a revenue share of every dollar an advertiser pays to purchase an ad. When ads cost less, our revenue decreases. This results in companies having to do more transaction to generate the same or more revenues, a fact which is also affected by technology costs as a percentage of ad spend increased. However, this also means that when the overall economic situation eventually turns around and advertisers increase their spending back to more normalized levels, the prices for advertising space also rise, and with them our revenues and margins.

Acquisitions have been part of your growth strategy. Since mid-2022, however, the focus has been on organic growth and integration, partly due to the debt at that time. At the end of the year, you have significantly reduced debt and are back within your target range. What can we expect in the short to medium term in terms of acquisitions?

– In mid-2022, several things came together. In the first half of 2022, we added the last missing pieces of the puzzle to our platform with the mobile demand-side platform Dataseat and the mobile games studio AxesInMotion. At the same time, the capital markets have seen substantial negative pressure, which has made financing not only more difficult to obtain but also more expensive. In addition, our leverage at that time was above our target range and also prices, especially in the private M&A market, had not yet adjusted to the decreased valuations in the public capital markets. We therefore decided back than to no longer prioritize M&A like in previous years, but to focus more on organic growth and further integrations.

Going forward, the priority will continue to be on organic growth and integration. However, it is also important to note that some of the points from mid-2022 have changed significantly. We have significantly reduced our net leverage to be within our target range and the M&A market has also turned into a buyer's market since then. Should attractive and value-enhancing opportunities arise in this environment that make strategic sense and support the company in its goals, we do not rule out taking such additive opportunities without missing our leverage targets and without shifting our focus away from organic growth and integration.

Transparency and privacy have become more and more important in the last few years. How has this impacted your business model?

– Data is of crucial importance to the advertising industry. The current focus on the issue of data protection on the part of various players is having a correspondingly major impact on our industry. Data privacy is important and legislators are further tightening the screws. Additionally, major market players such as Apple and soon Google are becoming increasingly committed to the data privacy issue. Above all, companies are increasingly paying attention to the sustainability of their supply chains, and this includes the issue of data protection in the context of their advertising campaigns.

Data is particularly important because, depending on how good the data is, you can make accurate assumptions about the needs of an end user who should be shown ads when opening an app. The better the assumptions, the higher the probability that the advertising will lead to an action, such as the purchase of the product. Accordingly, the advertiser is then also willing to pay more for this advertising space. 

We built our platform for exactly this new world, where privacy-compliant advertising is at the core. On the one hand, we have our own games that have first-party, opt-in data. On the other hand, we have acquired and developed innovative technologies that enable targeting without having to rely on personal data, due to using contextual data. All of the used data are privacy compliant.

What are your goals for Media and Games Invest in 2023 and beyond?

– We want to further grow our business based on our defined business model, which combines our advertising software platform with first-party consentual data from our unique games in combination with the use of contextual data. We saw at the beginning of the year that the market seems to have somewhat stabilized after the sharp decline during 2022. In our view, however, it is still too early to say how the market will develop in the coming months. There are still various uncertainties that could affect the advertising market, which can be seen in the different expectations of market participants.

In the medium- to long-term however we are convinced that the market will continue to develop positively. We are expecting that both the overall market will continue to grow strongly and also that CPMs will also rise again accordingly. The latter is what we can influence and what we are focusing on. Moreover, the market is so large and so fragmented that there is plenty of room for us to further expand our market share as well as our diversified revenues.

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Stockpicker intervjuar Remco Westermann, CEO Media and Games Invest

Gratis utbildning - Klassiska aktieformationer. Ladda ner här

Alla våra analyser hittar du här

Först publicerad i Stockpicker Swing Trader (3 juni 2022)

En positiv divergens har bildats mellan prisnoteringarna och momentumindikatorn i samband med att aktien testade stöd i den trendkanal som bildats på sistone. Nu har vi en fallande motståndslinje att bevaka omkring 35 - 35,5 kronor. Lyckas köparna få till ett utbrott här bör det vara dags att testa långa trenden vid 38,65 kronor.

På nedsidan är det närmast 30 kronor som är ett viktigt stöd. Etablerar sig aktien lägre än så lär den svaga kursutvecklingen inom den fallande trendkanalen hålla i sig ett tag till.

00:00:39 | For those who don't know Media and Games Invest yet, can you give us a short company summary?

00:02:55 | Can you tell us more about the transition from a gaming company to an advertising software platform in 2022?

00:04:28 | You recently released your Q4/2021. Could you please go through the highlights for 2021?

Ge din syn på Media and Games Invest här

00:05:33 | Media and Games Invest has grown substantially over the past three years. Will you be able to grow at such a high pace in the future?

00:07:39 | In the annual report for 2021 you presented that a combined gaming - media company is much more efficient than a stand-alone gaming company. Can you give us some more information about this and the synergies of having both a gaming and a media leg to stand on?

00:09:05 | You recently informed investors that you are moving your headquarters to Sweden. About a year ago you talked about Luxembourg. Why did you choose Sweden instead?

00:11:12 | You recently also announced some changes in your corporate governance. Can you explain what this means and is it due to the relocation to Sweden?

00:12:46 | Could you tell us more about the outlook for 2022 and your long-term vision?