MOBA Network AB

STO:MOBA

Earnings Call Transcript 2023-Q2

[Unknown Attendee]

This is the presentation of M.O.B.A. Network's second quarter. So a warm welcome to this webcast. The presentation will be held by CEO, Bjorn Mannerqvist and is followed by an interview with Bjorn, where I will follow up on the most important topics. So a warm welcome, Bjorn.

[Bjorn Mannerqvist, executive]

Thanks, Linda. Welcome to the viewers. Let's start the presentation of M.O.B.A 's quarter 2. Okay. So welcome to the presentation of M.O.B.A. Network's quarter 2 update. The presenter is me, Bjorn Mannerqvist, will go through the background of the company, some operational highlights, financials, and we will conclude with an interview. So M.O.B.A. Network, we are a world-leading gaming community network. We own several big assets in the gaming infrastructure. So we own and operate 23 global gaming communities. We own and operate a YouTube network with over 1,000 content creators called Union For Gamers. We have recently made a big and transformative acquisition of a company called Wargraphs that we have consolidated from June 1. So it's in this quarterly update. That diversifies our product portfolio even more through its world-leading gaming community app called Porofessor. Our journey started in 2018, and we have focused our growth on launching new products and brands and acquisitions, as you can see in our time line. Our growth have been funded almost exclusively by our own cash flows and equity historically. And we are now home of some of the world's most popular and high-quality gaming assets. We focus in on a specific niche in the gaming market. So we are not a game developer or eSports organizer. We are where the grassroots volumes of gamers are. And we now operate in several of those areas. So we offer news. We offer forums, and communities for user-generated content, our YouTube network, which covers the sort of broadcast streaming part of the gaming niche, and now moved much more heavily into the product category of gaming with the acquisition of Wargraphs and the app Porofessor. We monetize our whole asset network in the same way through a global ad solution. And we believe in the gaming audience, it's an exceptional audience. We have a large global reach. We find that the gaming audience is very attractive, demographics like age, and that the fact that they are quite big spenders in many online categories makes them attractive to brands to reach. We do have a big package getting bigger to sell to advertisers. We serve well over 100 million page views monthly and billions of video views yearly. So that sort of package becomes more and more diversified as we keep on releasing new brands and acquiring new assets or companies. So let's talk about the acquisition of Wargraphs, which is a big and truly a transformative transaction for us. So the company consists currently of 3 different assets. The 2 websites have a combined page view count of 4.5 billion since launch. And the flagship, the Porofessor app is growing rapidly and has well over 10 million downloads by the product. Wargraphs has a lot of similarities to the rest of our company assets in that it is a digital publisher with an underlying ad business. And its a global and strong worldwide footprint also makes it very similar to our other assets. So to summarize the Porofessor app. It's a game companion that players use while playing League of Legends, Teamfight Tactics or Legends of Runeterra, all very big piece of game titles. It gives the player feedback to make the right calls during the game, and it summarizes it for them after so that they can become better players. And the growth of the app is displayed in the graph of downloads of installs. And as I said, we're now well over 10 million mark for the Porofessor app. So the strategic benefits for us with the acquisition have been that we have a very both good relationship with a great plan together with the founder and vendor of the company to stay within the group. We have identified Wargraphs as a great company to move in to target new games. So Wargraphs will use its infrastructure and brain power and historic data to build new apps and products. First, we're looking at building an app for the game called Valorant in the coming quarters. We also see Wargraphs as a great vehicle for us to grow into the Asian markets. And why? It's because we now have access to data that we previously did not, so that we can offer the Porofessor app and upcoming apps much more effectively to the Asian markets, which we think can increase our audience even further. We expect the TAM to be around 30% for this. And we've also already obviously started to utilize all the existing synergies that we see in our acquisitions. So ads opportunities. We have already moved a couple of assets from Wargraphs into better terms agreement. And we're continuously working on extracting those synergies. So I've mentioned diversification. That's a big part of our acquisition strategy. Here, you see how the structure was before the merger of the companies, and we now have a much more diversified revenue stream with web-based, app-based and videos. And we hope to be able to build on that, both with the current assets and future assets. Okay. So financials for quarter 2. Obviously, no denying that we experienced headwinds in the market and that the world economy has affected our margins. So we have a decrease compared to last year's quarter 2. A note on the quarter 2 in 2022 was that it was a very, very strong quarter, one of our strongest quarters ever. So there are tough comparison numbers. If we -- worth mentioning as well is that our margins and booked costs for this quarter include a lot of transactional costs amounting to the acquisition of Wargraphs, which is impacting margins and our bottom line. So to compare within sort of the headwind period, we're quite happy to see that we increased in comparison to the last quarter, quarter 1, and that the margins have gone up. So our adjusted EBITDA increased by 160% quarter-on-quarter, Q1 versus Q2, which we're really happy about. The EPS also, adjusted for the transactional costs is an improvement. And to give some operational highlights for Q2, we started integrating successfully Wargraphs from June 1, as I mentioned, and we've seen a 20% traffic increase to our owned and operated websites. So to conclude, the graphs over the LTM, I mentioned that quarter 2 in 2022 was very strong. And as you can see in the graphs, it kind of marks the last quarter before sort of market headwinds and world economy started to make an impact. So that's worth mentioning, I think. So let's move on to our outlook and focus for the short term and the long term. So working in a headwind market, obviously, requires a company to focus on initiatives that move the needle and have a positive impact on both operational and financial KPIs. So our traffic increase, as I just mentioned that we had in Q2 versus Q1, had a great effect on margins. So obviously, we're going to still focus on that to replicate it. On that same note, adding new features and building new products is a great way to increase the usage of our products, which increases margins due to more advertising impressions. And our main focus for the short term to do this is Wargraphs and the YouTube network UFG. We focus on signing agreements that affect our margins and operational output positively. So we signed a group-wide agreement with the ad network Raptive that we can keep using for more assets as other contracts expire or we acquire new assets with this agreement affects the margins. And we just released that we have signed an agreement with a company called Mediacube. And this is to increase operational output for the YouTube network UFG. We also, as we always do, a focus on reinvesting into the company, and recruiting is a big part of that. So now we obviously focus on very high competence for our most prioritized areas, to help us reach our short-term goals that we will benefit the long-term growth. If we look at some statistics or outlooks for the longer term in the ad market, we are still positive, even though we're experiencing headwinds. So we are seeing these investments that we're doing to be very worthwhile because we see that digital advertising for gaming is a growing industry, and we really believe that it will continue to grow from 2025 and beyond that. So our sort of long-term pillars that we have used to grow the company since the beginning have been to reinvest in our resources and development to support growth and synergies. We constantly work on optimizing our sales process, getting the best kind of terms that we can get for the ad inventory, concrete partnerships, and other things that sort of needs constant optimization. We want to maintain and develop our position as a world-leading gaming network. We believe that we do that by developing new products, features, listening to the community, acquire. So we keep scanning the market for acquisitions that tick our boxes. So to conclude the Q2 presentation, our sort of investment case, we see ourselves as a world-leading consolidator in the community aspect of gaming, which is quite untapped. We invest in games with a long, long history and a massive following that we can then create networks effect by in our own company through SEO, ad sales and cross promotions. And we will continue to aim to grow both organically and through acquisitions moving forward. So with that, I say thank you, and we'll welcome back, Linda, for following interview. Thank you.

[Unknown Attendee]

Thank you for your presentation, Bjorn. So what is the key takeaway from the second quarter?

[Bjorn Mannerqvist, executive]

Key takeaway that we focused on the most was our big acquisition of Wargraphs, and the integration of that operationally within the group has been a big focus, but also discussing and working in the industry to be able to now sign new partner agreements and that all started back in Q2. That would be the main takeaways.

[Unknown Attendee]

And the revenues, they were indeed better than for Q1, but slightly lower than a year ago. So what is the explanation for this?

[Bjorn Mannerqvist, executive]

Mainly the market. Unfortunately, we are facing, as I mentioned in my presentation, a market headwind, which is the main contributor to that. The last year's quarter 2, as I also said in the presentation, was really tough to compare with this year because it was exceptionally good. And then after that, the market headwinds started to sort of make itself known, but it's been, over the last couple of quarters, it's been something we've had to deal with. And that's the most -- the biggest impact.

[Unknown Attendee]

Okay. But what measures is M.O.B.A. taking in order to counter this weakened market and to increase growth in spite of the market?

[Bjorn Mannerqvist, executive]

Yes. I mean we try not to focus on the market continuously every hour, every day in our operational work. So as I also mentioned, we work in the short term on margin effective strategies. So a good example, as I mentioned also in the report was that we saw -- we had good traffic development during the quarter that has a good effect on margins. So obviously, we want to keep replicating that over and over. But also finding new high output cooperation agreements and, well, other things. But that's our most sort of important measures that we are working on right now.

[Unknown Attendee]

And let's stay with the market for a while. You mentioned that you see no signs of recovery in the market at the moment. So let's say that there will be no recovery during this year. How resilient is M.O.B.A.?

[Bjorn Mannerqvist, executive]

We feel like we are resilient. We have, well, apart from financials, which I think we have a very strong balance sheet and strong cash position, solidity, all of those things. But our assets are proven long-term good assets. And in that, I feel very sort of comfortable. And the addition -- or maybe not addition, but our hard focus can actually move the needle despite market conditions as we could see in the comparison between quarter 1 and quarter 2.

[Unknown Attendee]

Okay. And in a more positive scenario, if the market do turn -- the trend turns upward this year, what would that mean for M.O.B.A.? I mean how well positioned are you in order to...

[Bjorn Mannerqvist, executive]

Well, a big uptick would be probably the easiest thing for us because we already have everything in place, so that would be kind of instant. We really saw that during COVID when we had a disaster in the early on. And then when the market sort of turned, we, within a month, we could see results that were better than pre-COVID. So the ad inventory is what it is. If the market goes up by a lot, our ad inventory will go up by a lot. So it's sort of -- that's the most resource effective. So an uptick is great.

[Unknown Attendee]

Okay. As you mentioned, both revenues and the adjusted EBITDA were increased when we compare to Q1 this year. So what's the explanation for this?

[Bjorn Mannerqvist, executive]

Well, obviously, we have integrated a new company for 1 month, which has good financial KPIs such as profitability and margins. But also on the other assets, we saw an uptick. The margins were better. We -- as I said, we were able to increase traffic, which was a good impact driver on that. And then a slight seasonality effect. So Q2 is normally better than Q1. So I mean, looking ahead, we still expect, for instance, Q4 to be better than Q2 because that's the normal sort of cycle within the ad market. So regardless of the market trends, that's still sort of how we see it. So the year starts off slow and ends with the best quarter.

[Unknown Attendee]

You also highlighted, obviously, 2 significant collaboration, one that was announced during the report period, that was Raptive, and another that you announced recently after the quarter that was with Mediacube. So let's start with Raptive. How will the collaboration with Raptive affect your customers, your end customers to begin with?

[Bjorn Mannerqvist, executive]

So it doesn't affect our end customers so much because they are traditional ad agencies that are already established within the Raptive ad network. So since we already work with Raptive on some of our assets, we see that they have a really good technical ad stack that we believe in. Even in tougher markets, we see that they don't really fall through as much as maybe other partners. And we truly value their support and how we are able to communicate with them. It's really world class. And they're big U.S.-based company with a lot of contacts, which I think will benefit our ad inventory. So that's the reason for it. But we were also able to get what we consider good terms on a deal where we can also add assets as we go.

[Unknown Attendee]

Okay. So is that your expectations for the collaboration with Raptive? Or could you elaborate a little bit more?

[Bjorn Mannerqvist, executive]

No. The expectations is that we will still have a great relationship where we will get a lot of feedback on how we can improve our serving of the ads. But the more assets we can move over, I would expect the margins to be impacted positively as well.

[Unknown Attendee]

And moving on to Mediacube that you recently announced. What is the -- why did you initiate this partnership to begin with?

[Bjorn Mannerqvist, executive]

So we feel like we need much more operational output, which means that we feel like we can offer the content creators that we have in our YouTube network, but also future content creators that we want to add, that we can offer them a better service, and that Mediacube has offered us, for instance, a pretty sort of forward-thinking financial platform, which we will make available to our content creators, which we think is a great service. Will increase loyalty and our ability to recruit more content creators. We also have many other sort of operational aspects that we see that we can use in this collaboration with Mediacube. We'll get some more head count on -- focused around things that move the needle for our YouTube network, sales and recruitment of content creators.

[Unknown Attendee]

So what do you expect from the collaboration with Mediacube?

[Bjorn Mannerqvist, executive]

Yes, my expectation is that we will add more content creators than what our normal sort of numbers have been. I expect our churn or sort of loyalty to become better because we sort of offer some more. So those are my sort of short-term expectations for that collaboration.

[Unknown Attendee]

You described M.O.B.A. as a leading consolidator within the gaming industry or the communities for gaming industry. Could you expand on what that entails and what it means for the company's future development to be a consolidator?

[Bjorn Mannerqvist, executive]

Well, first of all, I'm happy that we are in this industry because there are a lot of very cool assets out there with a lot of cool founders, like our founder for Wargraphs, amazing person that we really love already in the company. So that makes me happy. And we have been good at integrating those values into M.O.B.A. And that sort of -- acted sort of as rings on water that we have been much more known for being an active acquirer, which means that we now are in a better position to be approached by these great assets that are out there. So certainly, the Wargraphs acquisition has made us even sort of more known out there. So it's fun to see really exciting leads come in. So we'll see what we do in the future.

[Unknown Attendee]

Yes. And one thing that you mentioned is that you are working on new applications or new services within Porofessor. Could you tell us a little bit more on when will you -- when will this be realized for the further?

[Bjorn Mannerqvist, executive]

So we don't have a firm ETA. I think we would need to communicate that. But what we have now with Wargraphs is that we have an infrastructure for these products, that we know are good because we can see it in the operational KPIs. We can see it in the users' reaction and the loyalty to the product, which is the most important thing. So obviously, we want to expand on that, both the technical aspect of it and sort of know-how within the company, to expand more. Our data shows that sort of -- yes, we said we want to create a Valorant app, which we have started, in Wargraphs. And it's a game that's growing really fast. It has -- it ticks the boxes that we look for like established games, lots of players, very active eSports fan base now that sort of helps the popularity of the game. So that's what we're doing, but I don't have an exact ETA. But we're moving along here.

[Unknown Attendee]

Okay. Wargraphs, which you consolidated from June, how much of the integration work is still remaining?

[Bjorn Mannerqvist, executive]

Well, if you ask me, it's never ending. But I'm super happy that more specifically, our sort of subsidiary in Canada, CriticalClick is -- already has resources that work with very similar products. The same games and the same audience sort of. So these people have really been easy. They have an easy time to bond and see the future perspective. So that's already ongoing and very seamless kind of affair. And Wargraphs was not a resource-heavy company when we acquired it. So we're happy that we have brought in extra resources to help maintain, build new features for existing products, but also the expansion into the new products that we will see in the future.

[Unknown Attendee]

Okay. And looking forward but still in the acquisition area, will you continue to acquire or in the near future? Or was Wargraphs the big thing for you or how?

[Bjorn Mannerqvist, executive]

No, I certainly don't see that as the end of our acquisition strategy because, as I said, there's still so many great assets out there for us. I don't think that, maybe a bit more than 2.5 months into a massive transaction, maybe not like we are focusing on same kind of level. But as I said also, it's certainly not gone unnoticed that we are an active acquirer. So we get approached by a lot of interesting people in a constant flow.

[Unknown Attendee]

What can they say in order to attract you to fit into the company of M.O.B.A.?

[Bjorn Mannerqvist, executive]

Well, so most of the founders are just so sort of inheritably proud of the product that they've built, because most haven't built it for money and fame. They built it for the love of a game or several games or -- so when you...

[Unknown Attendee]

Is that a good thing? I mean it sounds like it...

[Bjorn Mannerqvist, executive]

Yes. I really -- because most of them have become very successful, but it was not the intention. So the product is built by the best of intentions to make a great product. And that's what we -- that's where we try to be in the value chain. So yes, that's -- but that's quite -- it comes quite natural, I would say, in a lot of discussions that we have with potential new acquisitions.

[Unknown Attendee]

Okay. Let's move on. You are, M.O.B.A., you don't really have any good peers in order to compare. You're sort of one of a kind at the market, I would say. But among -- how would you describe your market positioning at the moment?

[Bjorn Mannerqvist, executive]

It's strong. I believe we own a massive portfolio of really well-known brands that a lot of people use on a very sort of active basis. And the competition, as you said, is not too easy for us to just pinpoint, maybe like an [indiscernible] oh, yes, this, because we have different competitors for different sub niches of our audience. So some games, we compete with some people. Some other games or products, we compete with others. But as a group, my belief is, and the feedback I get, is that our market position is quite good because we were complete unknown just a few years ago. So, yes.

[Unknown Attendee]

M.O.B.A. has grown profitably since the inception in 2019. How do you view this in the long term? Will this trend continue? Or...

[Bjorn Mannerqvist, executive]

That's our -- one of our main pillars that we will want to maintain that, yes. So that's the operational focus. And also. it becomes a lot of focus if we enter into discussions for instance with a potential acquisition or something that. We don't really advance any discussions with companies or assets that are not profitable because we don't see ourselves as like an investment vehicle. We see ourselves as a fairly sort of -- a company with mature products and they should be profitable, in our opinion, yes.

[Unknown Attendee]

And to be a profitable -- to grow with profits, that is one of your pillars in your equity story. Can you sum up a little bit more on the equity story?

[Bjorn Mannerqvist, executive]

Yes. Well, that's certainly one part. I think I described it in the time line that the strategy for us to sort of grow by launching brands or features on the existing network and technical platforms that we now own, adding great assets through acquisitions will -- making us a consolidator. Yes, a key point in the equity story for us, probably on top. The other part is that we continuously work on to sort of create network effects in the growth that we've had, so that we can utilize the network effects in the most efficient way. It could be sales, it could be audience sharing. And that's something that we continuously are working on. So those are our main sort of parts of our equity story.

[Unknown Attendee]

And looking into the next quarter, what is your main focus for the third quarter?

[Bjorn Mannerqvist, executive]

It's kind of similar as quarter 2 because we are still full speed ahead with Wargraphs, but now we have these sort of new operational and sort of margin-effective new agreements that need to be put into place and to be working. All these like short-term things that I noted in my presentation about really focused on the high output projects, which includes a margin positive changes, operational output at like on an agreement level with a good deal that is maybe [ rev ] share-based or something, to make it not add to our cost burden in these times. And just work from there with our sort of pillars intact in the bottom of everything.

[Unknown Attendee]

Thank you so much. So thank you, Bjorn Mannerqvist, the CEO of M.O.B.A. Networks, and thank you to all our viewers.

[Bjorn Mannerqvist, executive]

Thank you.