Modern Times Group MTG AB

STO:MTG B

Earnings Call Transcript 2023-Q1

[Operator]

Good afternoon, everyone, and thank you for joining MTG's live stream and teleconference for our first quarter results. This event is hosted by our Group President and CEO, Maria Redin; and CFO, Lasse Pilgaard. After the end of the presentation, there will be an opportunity to ask questions. If you're watching the live stream, please use the questionnaire feature in the video stream to submit your questions. If you are joining us today by phone, please follow the operator's instructions after the presentation is finished. I now hand over the word straight to our CEO, Maria.

[Maria Redin, executive]

Hi, everyone, and thank you for joining us. Our performance in the first quarter and the dynamics that we see for the rest of the year underscores our conviction that our strong diversified portfolio of evergreen IPs to drive long-term sustainable growth. On top of that, we believe more than ever in creating relevant scale through a synergetic approach. This will enable us to accelerate growth and create incremental value over time with the help of our group initiatives. Looking into this quarter as a group, we do have a quarter with two quite different stories. On one hand, we continue to have underlying strong performance in our word games and our tower defense franchise. We saw positive underlying growth and good momentum from both PlaySimple and Ninja Kiwi in Q1. On the other hand, InnoGames had a tough start of the quarter. It falls sort of the similar trend that we saw in Q4, but it had encouraging positive momentum during the second half of the quarter. They also in the quarter or end of the quarter, actually announced a strategic reorganization in early April to reposition the studio for future opportunities. PlaySimple, in particular, continue to deliver stellar underlying results. The established games continue to perform, but what we're really excited about are the two new games, Crosswork Explorer and Word search. Both tides are scaling rapidly and they now represent nearly 10% of the world franchise of revenues. And to add to that, as we went into the quarter, we didn't really know what to expect when it came to the CPM levels, but we're really happy to see that PlaySimple actually managed to maintain stable levels in Q1. And that's actually quite unusual as we normally see a decline coming in from Q4. And again, we continue to face a challenging environment coming out of Q4, and we're still affected by low visibility, Apple's IDFA changes, and the macroeconomic uncertainty. And this together with some underperforming events in the quarter led to a really tough start of the year. We did, however, on a good note, start to see gradual improvements in the performance of the Strategy & Simulation franchise during the second half of Q1. And also, we saw the same strong performance continued throughout April. And that led to better monetization of existing users and key events helping reactivate all players. We also saw the first sign of an improved marketing landscape for these games [indiscernible]. Looking for the group, our revenues were down 4% year-over-year to DKK 1.3 billion in reported currencies and down 11% excluding currencies. The decline mainly reflected two factors. The first one was the InnoGames revenues were down quite a lot year-over-year because of the continued softer sales in the first half of Q1, and as I mentioned just before. The second was the PlaySimple, but the first out of three payments for their platform incentives last year. And that means that they are facing inflated comps year-over-year. This payment impacted the year-over-year revenue decline in Q1 by roughly 5 percentage points. Looking at our adjusted EBITDA, we reported a margin of 20% in Q1. And I think it's worth noting that our underlying margin would have been slightly up year-over-year if we exclude the platform incentive payment that I just mentioned and also when taking into account the change to our adjustments to the EBITDA margin that we adopted in Q2 last year. Our margin performance reflected a blend of some effects. We had an underlying higher profitability in InnoGames. And even though they had lower sales in the quarter, they actually invested less in marketing, especially than in the first half, combined with a high underlying profitability for PlaySimple due to the strong underlying performance. The underlying results were somewhat offset by ongoing investments in the Web 3.0 initiatives that we're doing in Kongregate as well as investment in Hutch making new games. Let's then take a closer look at our sales. The group sales were down 4% year-over-year in the quarter, and that is despite a 7% boost from positive currency effect. However, while we do have many things to work on, and we'll touch upon some of them later, we're also excited about many things in the quarter. As I mentioned before, PlaySimple continued its strong performance in Q1, and the growth will come through successful live-ops within the anagram franchise, in particular, combined with the fact that they now have two new games that they are rapidly scaling. Similarly, Ninja Kiwi's flagship title Bloons TD6 continue to perform well in the quarter. And even though the sequential sales performance was down because of the success of Steam Sales they had in Q4, Ninja Kiwi really showing what a strong IP can do to revenues and also in the beginning of the quarter. So two, they actually now launched a successful update to the games and that was followed by a successful Steam Sale. Hutch revenue reported a slight decline in Q1, and that is really driven by closing down some of the catalog games. You should remember that Q1 is also normally a seasonally slow quarter for Hutch because they need the Formula 1 racing season to begin to do the annual reset of the Formula 1 clash. But on a positive note, Hutch did have larger than unusual sales when the Formula 1 season started in March, even though not having done the reset yet, which is really a testament to the popularity of the IP. As I mentioned earlier, InnoGames had a challenging time in the first half of the quarter, but they really saw improved performance towards the end of the quarter in force of Empires and also going out of the quarter. And this is really encouraging and is really driven by several successful events now in March and in February. After the quarter, [indiscernible] announced, InnoGames announced a strategic reorganization in early April, and the leadership team wanted to make sure that the company is moving forward faster, becoming more agile, and of course also then adjust the overall cost base. And that is really to better reflect the current market and the performance. The goal is to enable core teams to be faster and be more efficient in the work to drive the current games and to also accelerate the development of the new games. Unfortunately, this reorganization also means that InnoGames had to part with 75 colleagues, which is of course, always a very difficult thing to do. So let's now look closer to the franchises. As I mentioned before, Word Games continue to do really strong and it's now been the largest in our portfolio for five sequential quarters and is reporting growth strongly every quarter. Franchise revenues increased by 6% sequentially, but were down year-over-year by 7% in constant currencies. The decline reflected the platform incentive that I just talked about before as well. But the sequential growth came from both established and new games. The team has had an ambitious content pipeline that focused on ad revenue optimization and also improving retention in key titles like DTC, Word Trip and Word Jam, and that comes through live-ops and both in-game content. We're also very excited, as I said before, to see the double-digit sequential growth of the new titles, Crossword Explorer and Word Search. These games now represent close to 10% of the franchise revenues in March, and we're also able to successfully scale up marketing behind these games. The strategy and simulation franchise did have a tough start of the year, but it did demonstrate positive momentum towards the end of the quarter and also going into April. Franchise revenues were down 9% sequentially and 21% year-over-year in constant currencies. The biggest driver of the decline was the lower revenues from Forge of Empires and Elvenar. Forge of Empires did have successful events in February and March, which managed to reactivate all players. We are seeing encouraging signals and momentum in Forge of Empires with our events successful executed, reactivating all the players and also increasing revenues from the established players. The team also continued to develop Forge in the quarter with several exciting content updates, including improvements in particular, in the early game experience. The new games of in-games which we talked a bit about, Rise of Cultures and Sunrise Village, grew in the quarter, but at low levels. Neither game has really managed to scale successfully and InnoGames is taking action to change the trajectory. For Sunrise Village, we do have a pipeline of new content that is expected to deliver improvements throughout the year. And for Rise of Cultures, the team is working on a large revamp of the game towards later this year. Both these updates are expected to take the games to the next level of scaling. And as we see that, we continue to put more marketing behind them. The raise in revenues were down 3% year-over-year and 23% from Q4 last year in constant currency. Formula 1 Clash follows a normal seasonal pattern with sales down sequentially, while the game teams get ready to launch the 2023 season reset. And keep in mind that the season reset is coming as the Formula 1 racing season starts each year. So for this year, we expect it to come in May. The game did, however, experience a boost in performance, and we saw all players reactivating when actually just Formula 1 season started already in March. Top Drives continues to perform well, and this is thanks to the work done by the team last year. The games first and a TV ad also went live in February, and given the success of that, we are now also looking into the possibilities of adding TV ads for Formula 1 Clash. Our Tower Defense franchise continued to showcase the power of the Bloons IP and the passion of the player community. The franchise had another strong quarter, with revenues growing 5% year-over-year. While sales were down 14% sequentially, we need to remember that this was predominantly driven by the strong Steam Sale that we saw in Q4 last year. The latest highly anticipated update 36 from Bloons TD 6 was launched now in April, and that also now followed by another successful Steam Sale here in April. The update that we did include a brand-new tower, map, and other key features. Ninja Kiwi games also continued to perform well on third-party platforms like Steam and Apple Arcade. And this, we're adding more and more platforms to ensure that the title and the game are exposed to broader player audiences. What is exciting to us is that Ninja Kiwi is working now on a version of Bloons TD 6, both for Xbox and PlayStation, which will be an exciting development because it helps players to experience this IP on platforms outside the mobile. And when it comes to Battles 2, which we talked as well about quite a lot last year, we're working to improve that. And as we see improving performance, which we have been towards the end of the year, we will then start scaling marketing in the future. Last but not least, we're talking about Kongregate and that continues to invest in the development of the Web 3.0 gaming, and they also have the portal, Kongregate.com, where we now publish five games from external developers in Q1. The Bitverse games report an increase in engagement with the NFTs every week in the quarter. But despite that, Congress portfolio still experienced a decline in revenues year-over-year. Bringing new games to the market is a priority for us. And that's also why I'm really excited about the two games I mentioned before, PlaySimple's new titles, Crossword Explorer and Word Search, which both shows very strong traction in the quarter, which enabled us to scale up marketing. When it then comes to the established games, PlaySimple at a busy quarter with a wide range of new features for both the anagram and the Crossword franchise games. Looking on into Hutch, of course, what we're looking forward first and foremost, is a season reset of Formula 1 Clash, which now takes place in May. But further, the team is also working on developing two new titles based on both international licensed brands, which they expect to at least have one launch coming in this year and possibly also two. Both these games as we do early retention data testing are looking very positive. Looking down a little bit further out on the time zone, Ninja Kiwi has three games in the pipeline. This is both games within the existing, but also totally new IPs, and we're very excited to see this hopefully reach the players in 2024 and 2025. Kongregate, on their behalf is also working on a new traditional title based on a major global entertainment IP, looking to solve launch it early next year. And InnoGames is, as I also previously mentioned, focused on the work to improve both Rise of Cultures and Sunrise Village. They have a clear plan for each of these games for the year, and we are excited to look forward to see the improvements come through so that we can scale marketing further. They are also aiming above and beyond what they're doing in the mobile version of it to also launch Sunrise Village in the second half of the year. Our total number of daily active users and monthly active users were down in Q1. This is mainly because of the challenging environment in attracting and retaining players in our mid-core segment. But we have, however, seen a very positive momentum in our casual player base. And this is, of course thanks to the fantastic performance from the PlaySimple's gaming portfolio. And that is almost offsetting the overall decline in Dow and Mile for the quarter. Our average revenue per daily active user was up by 8% year-over-year, and this is mainly due to a high proportion of veteran players in our mid-core games. Our top 3 performing games in the quarter were still Fort of Empires, Word Trip and Word Jam. Together, they represent 44% of our revenues in the quarter compared to 46% in the fourth quarter. Now I will hand over to Lasse, who will discuss with you our profitability and financial performance.

[Lasse Pilgaard, executive]

Thank you, Maria. So our adjusted EBITDA margin landed at 20% for the first quarter of 2023, which equals just above SEK 1.3 billion. If we talk a bit about the margin and compare that to the first quarter in 2022, in '22, we had similar marketing spend as a percentage of revenue. However, in Q1, we also had basically a positive impact from the platform incentive payment in playSimple, as Maria has mentioned. And also in Q1 2022, we did not adjust for incentive cost in the same way that we're doing now. Now as you know, we are only adjusting for the nonrecurring items. So if one were to correct those two or you could say, exclude these two effects in the comparison numbers back in 2022, our underlying margin would have been 19%, and hence, year-over-year, we are up 1 percentage point. This underlying improvement reflects margin improvements in both InnoGames and PlaySimple, offset by lower margins in Kongregate and Hutch as a result of new game investments in both of those companies. The increased investment level in our new games are also reflected in our CapEx levels, which equaled 5% of revenue for this quarter. And as a result, we saw a simple cash flow margin, i.e., adjusted EBITDA less CapEx for the quarter at 15%. On the bridge between adjusted EBITDA and reported EBITDA, we had nonrecurring bonus items related to the PlaySimple transaction of SEK 13 million. We've had that in every quarter, the last 5 quarters now. And as you know, it's going to last until end of 2024. We also had SEK 5 million of transaction costs that we adjusted for. Maria will later today comment on our full year outlook, including for the margin. However, I just wanted to note a couple of things when it comes to margin development, Q1 versus the coming quarters and what you should expect to see. We are seeing that margins will be higher than Q1 driven by three different factors. One being that, as you know, marketing spend is typically higher in Q1 compared to Q2 and Q3. This, of course, depresses margins in the first quarter. Second factor is that we expect continue to increase every quarter from here on a sequential basis throughout the year. That also will help support margins. And three, we have already taken action to reduce our cost base and generally are very cautious on our operating expenses across all portfolio companies where the visibility is low. If we're then moving to UA spend. If we look at the total spend level for the quarter, we ended up at SEK 537 million that we were able to scale within the lower thresholds that we have. This represented 41% of revenue and is similar to what we did in Q4 and Q1 last year as a percentage of revenue. Q1 should, therefore, be seen -- at least we're seeing it as a quarter with strong user acquisition spend, and we are very happy to report this and see that we are able to start scaling again after having had some quarters where we weren't able to scale to the level that we wanted to. The quarter did, however, start with difficult market environments. But towards the end of February and March, the market did become better, and we were able to start scaling marketing. This goes very much across all portfolio companies but was very strong effect in especially InnoGames. Because if you look at PlaySimple, the scaling did also happen throughout the quarter, but was more, if you say, linearly distributed across the different months and especially the new games are making up a majority of their scaling. And to give you some kind of idea, approximately 20% of our total spend in PlaySimple was actually going to their two new titles in the month of March. In InnoGames, as mentioned, we maintained similar absolute marketing spend levels as we had in Q4, which reflects a more cautious approach to investing in the new games. However, we still believe this is at healthy absolute levels. On a year-on-year basis, our decline in total marketing spend was mainly driven by InnoGames because they had this extraordinary high spend level in Q1 2022, where they were coming out of elevated COVID levels, but also we're just in the early life cycle of scaling new games, which we're not doing to the same level anymore. Generally, we are happy to see the improved marketing environment as we generally want to increase marketing spend at the lower thresholds that we are working with. The strong investment levels we see today create comfort for future revenues and profitability and also the outlook that we are presenting today. But of course, we are cautious that this is only 1, 1.5 months of observations in the quarter, but we still believe that the market is improving when it comes to marketing spend. So looking at our ability to convert profit into cash, we delivered another quarter in line with our long-term guidance. Cash conversion ended up at 51% in a quarter where we had high marketing spend, which typically impacts margins and bonus payments and headquarter impacting both net working -- impacting net working capital in Q1 as it also did last year. The latter was somehow helped by a partial reversion of the payment terms to marketing partners in place simple and interest rate gains at group level on our cash deposits. We also had a small negative net working capital contribution in InnoGames due to payment timing that will be reversed in Q2. We made the final cash earn-out payment in the quarter to Ninja Kiwi, which reduced our earn-out liabilities with SEK 463 million. We have also done a similar update to our -- sorry, we have also done a small update to our earn-out liabilities in the quarter, which increased the liabilities with approximately SEK 100 million, and this is very much due to the strong continuous performance that we're seeing in PlaySimple. Remember now, the earnout liabilities only related to PlaySimple and Hutch. We had end-off period total discounted earnout liabilities of approximately SEK 2.4 billion. Our end-of-period cash position equaled just around SEK 4 billion versus SEK 4.7 billion end of last quarter. The earnout payments, the share buyback program and the payment to play symbol related to the minority shares explains this development. So with that, I'll hand it back to Maria, who will take you through the outlook.

[Maria Redin, executive]

Thank you, Lasse. We are really encouraged by the group's overall positive momentum. It's good to see the early indications that the mid-core marketing environment is showing size of improvements, as we've discussed. And we are even more excited about the strong performance of our Word Games. The fact that intake continues to showcase what a strong evergreen IP can do to create long-term growth and then the new games pipeline in Hutch that is truly exciting. We also have an ambitious plan above and beyond this to continue to scale the flow platform. So when you take it all together, of course, we have as always a lot of work to do. But overall, we feel that we really are in a positive trajectory after a tougher ending of last year and a slow start of this year. Visibility, as we know, is far from perfect, but we do feel that the group's performance in the quarter, combined with the early market signals brings us comfort to our guidance. The outlook that we are, therefore, setting for us and for the full year is to be within a negative 3% to a 2% range when adjusted for currency effect. And this is then implying that we do expect to return to growth in the second half of this year. We also do expect that our adjusted EBITDA margin for the full year to be within our long-term outlook of 23% to 25%. When I look into the market, we do expect our overall market to decline by low single digits for the full year. But for the overall market dynamics also to become more favorable towards the second half of the year in the outlook. When it comes to then the longer-term outlook, that remains unchanged. We do feel that we have a strong portfolio of evergreen IPs, and fantastic studios and game makers. We have a clear strategy in place to build up our flow platform as a common layer to help our gaming company to accelerate, and our industry is supported in general by positive long-term demographics, technological and social trends. We also have a strong balance sheet, as Lasse just pointed out, to support future M&A ambitions, which then will help us grow our relevant scale. So with that, I thank you for listening in today, and that's all from Lasse and myself, and Anton, let's move over to questions.

[Anton Gourman, executive]

Thank you, Lasse and Maria. We are now ready to take questions, both online and via the operator. Operator, please go ahead with the questions from our guests via the phone.

[Operator]

[Operator Instructions]. The next question comes from Simon Jonsson from ABG.

[Simon Jönsson, analyst]

Good morning, Maria, Lasse, Anton. A couple of questions from me. First, on your growth guidance, minus 3% to plus 2%, what assumptions are behind the different scenarios here? For example, what is needed to reach the top of the range -- top range? And how much would you say is contingent on not yet released games?

[Maria Redin, executive]

Yes. I can start and then Lasse can [indiscerninble]. But when it comes to we have -- we have now a pretty good visibility on the year. We know how the year started. We know how the first events went. We also know how we're scaling new games in PlaySimple, most importantly. So the guidance isn't really contingent on new games to be launched, but it is contingent on that the events that we have both on live-ops on the more established games but equally important on the new games PlaySimple launch that they will continue to scale up. Then that's also why we provide a range. I mean we can have ambitions, and we can believe that we will have a perfect execution. But as you know, not everything always goes to plan. So that's why we provide a range. But to be in the upper end, we need to have a strong performance on all these things, and you need to continue to see a strong scaling up on the new games that PlaySimple are having and then there are some smaller deals that we also have in the execution pipeline in different companies that needs to come through. Then if all those things and all stars are aligned, we should be in the upper end of the guidance. If something's not scale all the way, then we'll be in the lower end of it.

[Simon Jönsson, analyst]

Or if marketing starts becoming significantly different than what we're seeing now, it's also reflected in the lower end of it.

[Maria Redin, executive]

Yes. Well, there's no new games to be launched. I know we're talking about the Hutch games. That is something that truly excites us, but it probably excites us more for 2024 than in just to 2023. It is important for us to -- for me sort of a comfort level to get them out, at least one of them this year, but from a financial point of view, it's not going to move that need that much this year is rather going to be in 2024.

[Simon Jönsson, analyst]

All right. And on the same topic on the fact that you expect positive growth from second half. Should we view that as you expect to grow from Q3? Or is it more overall in each too?

[Lasse Pilgaard, executive]

No. So I think it's very much due to the comparison numbers last year, right, Simon. Because as you also know, the incentive payment in PlaySimple was booked in the first, second and third quarter. And hence, that basically just means it's very difficult to grow year-over-year, those versus Q4. So underlying, without that, the growth profile looks different, and hence, we're returning to growth quicker than that. With that, it's probably more, you can say, around what you're indicating there, i.e., that is stronger in Q4, definitely for first half, Q3, definitely underlying with the bonus probably just around that.

[Simon Jönsson, analyst]

All right. Thank you. Also turning to UA on the better effectiveness, would you say that -- or should we interpret it as you aim to end up at the high end of the range of the UAC to sales that you have in your guidance in the coming quarters? Or would you say that you're still not comfortable enough to be that aggressive, so to say?

[Lasse Pilgaard, executive]

I think we're not updating our guidance on UA spend as a percentage of revenue, but do believe it still represents the expected outcomes. Remember, Q1 is always seasonally higher than the coming quarters when it comes to spend. So even though we've had a strong Q1, it's not the same as just assuming then you have automatically the same. However, we do believe that we will have a strong, you would say, marketing year in general. And that's, of course, also driven by the fact that PlaySimple continues to grow faster than the rest of the portfolio. As you know, PlaySimple is spending more marketing as a percentage of revenue than the rest, so they do pull up the average and hence, contribute in that direction.

[Simon Jönsson, analyst]

All right. So you would not say that you're aggressive?

[Lasse Pilgaard, executive]

No. I think while in the previous quarters, we couldn't be where we wanted to be, i.e., the plan, I think now we're probably more where we want to be. I wouldn't say yet that we've come to the place of saying, now we're actually aggressively scaling marketing.

[Simon Jönsson, analyst]

All right. And the last one for me. How big do you think the one-off cost in the years will be next quarter for the layoff?

[Lasse Pilgaard, executive]

Yes. So the total cost is estimated to be around EUR 3 million. As you know, this is a negotiation with the individual employee in terms of which kind of package that they choose, et cetera and that's why it's an estimate. It could also be that some of it flows slightly into Q3. So all of that is not booked in Q2. But for now, we would estimate a majority of it to come in Q2. It's something that we will be adjusting for as a one-off cost in our adjusted EBITDA, but of course, it does hit the net income and cash flow for the second quarter.

[Simon Jönsson, analyst]

All right. Thanks. I'll get back into the queue. Thank you.

[Operator]

The next question comes from Dennis Berggren from Carnegie.

[Dennis Berggren, analyst]

Good afternoon. So given the improving marketing environment that you saw towards the end of the quarter, should we still expect UA -- I think you partly touched on this. Should we expect UA to remain above the levels that we saw in Q2 and Q3 last year, given the momentum that we see at inflow? And then also a follow-up on the marketing environment. I mean, why do you think that the environment is included? What are the driving forces behind that and could portal so add some comments around the sort of trending you expand during the quarter. By what magnitude did it change between January and March?

[Lasse Pilgaard, executive]

So I think it's fair to say it wasn't like a groundbreaking step-up that we spent 25% in half and 75% in the other half. But we did see that the spend was more profitable. So remember, when we are talking about our ability to scale better, is a function of both the conversions we're seeing, but also the early retentions and the cost for actually acquiring them, i.e., the per click. And here, we could see that we could actually put more marketing into the funnel without jeopardizing the row one. That was what made us able to scale it. What's the underlying driver of that?I think it's still difficult for us to fully assess. Yes, we are getting better and better at working around the IDFA regulation, optimizing the right channels, but it also looks like something happened in the marketing environment, which relates to cost and also consumer behavior. But again, we have 1.5, 2 months of observations on that and it's too early for us to still fully conclude where did it come from? Is it persistent for the full year, et cetera. But of course, that's also why we are choosing to be a bit transparent on not just talking about a blend in the quarter, but actually that we saw different dynamics leaving the quarter. I'll let Maria add to that just after your detailed question on UA spend. So your question on whether Q2 and Q3 is represented? So last year is representative for the quarters of this year. I think as you also well know, we don't guide per quarter when it comes to UA spend. But remember, if you compare with the absolute levels, then -- or sorry, I think relative levels are better comparison than the absolute because, again, the revenue has also become smaller since given the year-over-year we are seeing. Relative levels were fairly low in Q2 and Q3 last year around the 34% to 35%. And given also that PlaySimple in relation to the others, has grown since and that we are seeing fairly favorable markets, which we definitely did not see in Q2 and Q3. I think we are optimistic on our ability to scale better than we did in those quarters, again, as a percentage of revenue.

[Maria Redin, executive]

Yes. No, I think that Lasse covered most. But I think the one thing to add as well is one thing is a market where we are seeing sort of early signs of improvement. And again, it's too early to say that that's going to proceed for the rest of the year. But I think the one thing you always should feel comfortable with is for us to have the right [indiscernible] levels is truly important, and that's why we do scale up when we see the opportunities. And when we see that the [indiscernible] aren't where we would need them to be, we actually do not spend that incremental dollar. But then also our own internal performance improved in the second half of the quarter, especially in the mid-core segment, which, of course, also helped us to be able to scale marketing a little bit more. So I mean that's basically the two things that always need to work in tandem, both the cost per install and then also the lifetime value expectation of the customers. And I think that's where -- at least we feel that we are in a good and better place going out of this quarter than going into the quarter.

[Dennis Berggren, analyst]

Got it. And then you could follow up on Strategy & Simulation. I mean how much of the implement that you see it's been driven by game-specific events like in [indiscernible] for example that you mentioned, versus improving overall micro conditions, specifically in our portfolio, that genre?

[Maria Redin, executive]

Yes. And as you know, it's really difficult to depict exactly what is -- what we saw those two things work in tandem. I think what the team in general has been working on is to really elevate the sort of the events because they are important for us. They're important for our customers. They truly enjoy them. And I think when we look at our execution of the February and March event, we normally have one big event per month. They were much better and much more interesting to the customers because that's what makes them meaningful and relevant. At the same time, also if you look at the sort of global purchase market data, and especially in North America and Europe, which is our addressable markets. I mean, March came out much stronger than what's generated. So of course, those things, they work hand-in-hand, if I can put it that way. But what we are excited about is also our ad improved performance. And now we need to make sure we keep that level as we move forward.

[Dennis Berggren, analyst]

Okay. And then finally just to check on the cost saves and your thoughts on the margin development because -- the question there is, the reduced cost base, is that entirely related to the changes that you're making in advance, or is there something else as well?

[Lasse Pilgaard, executive]

So you're asking whether the lower Q1 margin we have versus our full year outlook is basically related to all the improvements we're going to drive is related to InnoGames only or other things? Is that correctly understood?

[Dennis Berggren, analyst]

Yes. So I think you mentioned like three drivers for expanding margins [indiscernible].

[Lasse Pilgaard, executive]

I got it, yes. No, so it's not only InnoGames, right? Basically, yes, the cost reductions that we have done in InnoGames will, of course, help improve the margins. It's not a full year effect, but it should have a full quarter effect from Q3 and onwards. But as you also well know, given that we expect revenues to increase sequentially every quarter from here on, that also have a positive margin contribution if cost doesn't. And given that we do have a -- I will almost a different approach to cost development right now than probably 2 or 3 years ago because the visibility is different in the market that, again, it was 2, 3 years ago. We believe growth in general right now is actually margin expansive.

[Operator]

The next question comes from Rasmus Engberg from SHB.

[Rasmus Engberg, analyst]

Good afternoon. So I wanted to ask you, when we look at the trend now, if you exclude the platform deal, how -- are we very close to growth already excluding the platform deal now? Or where do we hand right now?

[Maria Redin, executive]

Yes, hi, Rasmus. I mean as I said previously in the presentation, there's really a quarter two stories. So InnoGames did have a quite significant year-over-year decline, which is hampering given the sheer size of InnoGames, it's sort of hampering the overall group sales quite a bit. So if you look at in sort of PlaySimple isolated, it is growing both year-over-year and is growing sequentially if you exclude the platform bonus. And then we also say that need to keep it the same is growing. So excluding the platform bonus, I mean you can argue 3 out of the 5 companies on a really good growth projection. In games, that's where we feel good that we feel that we are reaching sort of the plateau and things clear signs of stabilization. The team has a good plan in place where they want to come back to growth and innovation. And that's why we're quite excited even though the reorganization is difficult. It always is. But I think it's really important for the company to reenergize the organization and drive innovation so that also InnoGames can come back to growth. That's not going to happen next quarter. But we do and we hope they will see that we've seen sort of revenues coming down and now stabilizing, and we're working them hard to also bring that asset back to growth.

[Lasse Pilgaard, executive]

And maybe just to add some nuances on again, what happened throughout the quarter because if you look at especially InnoGames and go back last year, January was significantly higher than February and February was higher than March because of how we came out of COVID. As you will remember that, I don't want to say ended because it didn't, but the whole effect started tempering off towards the end of the year, and that meant the elevated revenue levels was really there, plus also the new games free promotion that they got on our blockade, which also -- sorry, on Apple, which also boosted revenue was also to the beginning of the quarter. Hence, now looking at what's actually in Innogames is year-over-year growth. One thing is per the quarter, as Maria just mentioned, but that also became a mixed story because if you look within the quarter, they left the month of the quarter significantly better on a year-over-year basis than they began due to this last year's effect, not because that their revenue grew dramatically. It was better at the end, but it was actually more driven by the historics. So to your question, Rasmus, if you were just looking at the very recent end of it, adjusting as you asked in terms of the bonus, et cetera, at a group level, we would be very close, probably not all the way there yet due as Maria mentioned, in terms of the different companies. But I think that's how you should think about the underlying trends in InnoGames.

[Rasmus Engberg, analyst]

And then just on games, how much do you anticipate to save there? I know you'll probably reinvest, but what is the --

[Lasse Pilgaard, executive]

Yes. We actually haven't chosen to announce that. But I would say you should have the building blocks of coming with a good estimate, given that were 75 colleagues that we had to let go, and we published the salary bands for all InnoGames developers a little bit less than a year ago. And then, of course, there's a little bit of German social secured costs and other indirect costs. So I think you'll get very close to a good estimate using that.

[Rasmus Engberg, analyst]

Right. Very good. And just finally, on the quarter, I think in constant [indiscernible], or rather in reported currency, PlaySimple was up, I think, 20% if we exclude the platform [indiscernible], did PlaySimple have any sort of trend or was that pretty much stable -- it was a growth throughout the quarter? Or did they also impact the better second half or worse?

[Maria Redin, executive]

I would say, in general, PlaySimple had a very good quarter all the way through. I think that the one thing they sort of sequentially did very good is, of course, scaling up the new games because each month is important. When you scale new games. So I think that is where they saw the incremental sequential growth on a sort of month-by-month basis. But overall, we are really excited about how that franchise developed. And the one thing that was at least for us uncertain going into the year was the CPM developments. I mean as you know, normally, Q4 is a season of the strongest quarter. This year in Q4, we didn't really see the uplift in Q4 that we normally see. However, going into Q1, we didn't see the drop either that you normally see. So I think that was something positive. And then, of course, the team is really working with when it comes to live-ops and events in a really good way that drives engagement of the customers that, of course, further adds to our revenues. So I think they had overall a very strong quarter.

[Rasmus Engberg, analyst]

All right. Thanks. I'll get back in later.

[Operator]

The next question comes from Thomas Singlehurst from Citi.

[Thomas Singlehurst, analyst]

Tom here from Citi. Thanks for the presentation and thanks for taking the question. I had two relatively higher level questions if okay. One, in previous sessions, you've talked about some Bloons TD 6 being distributed on Netflix. So I was wondering whether you could give an update on that and whether there's any scope for sort of more licensing and distribution deals like that. I suppose the point being -- I know there's just something slightly different, but you did have a platform bonus last year. I'm just wondering whether they were scope along the way for chunks of one-off money to come into focus? That was the first question. And then the second question, I was just wondering whether you could generically talk about the impact of generative AI as I presume a sort of productivity tools for the business either in terms of generating content or managing customers or any insights on the opportunities around generative AI would be very much appreciated.

[Maria Redin, executive]

Thank you, Tom. I'll start. When it comes to sort of -- I think it's quite interesting to see that you're getting more and more platform actually being relevant for us. And that's when you see when you have strong IPs like Bloons TD 6, it is truly sort of a tighter that is being highly sought after. So the Netflix deal is done, and we will get on the platform. So it's more about the timing on when it's going to go live. So that is something we look forward to. And as I also talked about, not only have -- we've been truly successful in Arcade, but we're also going to go into the Xbox and PlayStation later this year. So that just shows how you can work with sort of different platforms, making sure that you get the game out to a broader audience and bring excitement to the customers. And that goes out there. I mean it's not just Ninja Kiwi that are talking to the platforms, there are more companies in our portfolio that are discussing different opportunities. And of course, those are some of the deals that we're hoping to be able to close and then be able to come back to throughout the year. But when it comes to sort of the plasma bonus, that is actually quite something different. I mean that was more about how we work with our inventory. That was quite a unique situation also when we changed the platform last year about the sort of end of Q1, that was driving that. And if we would get something similar this year, I sort of would not expect that, and you may do smaller deals in a smart way to make sure that we optimize how we work with our inventory and how we work with our partners. I mean that's just part of doing business as such. So I think that what I find exciting is that we're actually seeing more available platforms when it comes to getting our games out to customers, and that is something that I think we should draw the benefit of making sure that our games simply get more broadly available to the customers. When it comes to your other question, I think AI is something that everyone is talking about. And I think last year, it was all about Web 3.0, and this year, it's all about AI. And of course, I mean the power of AI, I mean it's difficult to dispute. I mean it is sort of simply amazing what I can do when it comes to graphic, with CRM, with events, with games creation even. So I think that there is, of course, an amazing opportunity. I think there's also a gray zone to understand how can you actually utilize it -- who has a sort of IP rights of it. And I think that we are still very early days to understand how to actually utilize it. And also remembering that people is our biggest asset. So I think that is a sort of an important balancing act to have, and I think we are getting our heads around to understand how where and when should we actually utilize AI in what we do and where does it make sense. But I think that it's clearly a powerful tool. And I think that all of us are going to have to figure out how do we work with it in a sustainable way.

[Operator]

The next question comes from Simon Johnson from ABG.

[Simon Jönsson, analyst]

A follow-up from me on the CPM levels. You said that you did not see a drop in Q1. But it seems like the overall online ad market was down quite significantly. Do share that view, first of all? And was there anything company specific to PlaySimple behind you maintaining high levels?

[Maria Redin, executive]

Yes. No. I think that we've probably been looking at the same data source as you when you look at the overall global CPM levels, and I think they were down around 20%, 25% or something year-over-year. But when we speak to other players in the industry, I don't think that anyone has seen the same drop on the gaming related part and nor have we seen in PlaySimple. I would love to say that it's only us and has done a great job, but I think that also, in general, on the sort of gaming CPM levels, there's been actually not that development. Then I think that our team within PlaySimple doing an amazing job optimizing always the inventory, which also makes a meaningful difference and also making sure that we keep the customers engaged longer within the games, which also makes us able to monetize eyeballs during a longer period of time, and that also plays in affecting our overall revenues. So I think that is something that we are doing on our behalf. But on a good note, the gaming ECPM levels as far as -- I mean there's no perfect data source, but based on our Intel, the market didn't see that significant decline.

[Lasse Pilgaard, executive]

And I think, Simon, just to add, if you also go back to our long-term strategy and Capital Markets Day, when we talked about our expectations for the future when it comes to in-app advertisement and revenues so from that, we are fairly bullish on it because today, advertisement on mobile games represents less than 5% of total digital, and we believe that that share is going to grow. And it looks like else, at least my math doesn't work, that they must have taken all mobile gaming as an advertisement platform has taken quite a lot of market share in Q1. And hence, that shows how robust that part is. And of course, when hopefully, digital spend in general gets back to growth and gaming continues to take market share, then we're going to get back to those previous high 15%, 20% yearly CAGR in that part of the market, right? Which we are not at yet or a right now, but at least one can see how it's possible to getting there based on the market share gains.

[Simon Jönsson, analyst]

All right. So basically more money flowing into the mobile ad system, I guess?

[Lasse Pilgaard, executive]

Yes. I would add some othe rdigital sources.

[Simon Jönsson, analyst]

Do you have any reports on why that is?

[Lasse Pilgaard, executive]

I think it's still an underpenetrated advertisement platform for many. So if you look at who's advertising in games, it's very much other games because many other advertisers hasn't really started to get into that yet. I think many has waited until scale started to be there because you need to have different formats to work on it. And one could be optimistic to say that, that is starting to happen and hence, demand moving from traditional digital channels to games here is starting to come from larger players as well.

[Simon Jönsson, analyst]

All right. So mainly -- possibly mainly money flow from other kind of marketing sectors marketing in mobile, I guess?

[Lasse Pilgaard, executive]

Or digital generally, right?

[Simon Jönsson, analyst]

All right. Thank you. That's all for me.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Anton Gourman, executive]

We have no further questions digitally either. So with that, I would like to thank Maria and Lasse for today. Thank you, everyone, for listening in, and we will see you soon. Thank you.