Modern Times Group MTG AB

STO:MTG B

Earnings Call Transcript 2022-Q4

[Anton Gourman, executive]

Good afternoon, everyone, and welcome to the live stream and teleconference to present MTG's results for the fourth quarter and full year 2022. Thank you for joining our first-ever live video stream for our results. The event is hosted by MTG's President and CEO, Maria Redin; and CFO, Lasse Pilgaard. [Operator Instructions] I will now hand the call over to our CEO, Maria Redin. Maria, over to you.

[Maria Redin, executive]

Thank you, Anton, and hello, everyone, and thank you for joining us today to discuss our Q4 and full year results. For us, 2022 was a transformative year in so many ways. The sale of ESL Gaming in April has enabled us to become a focused pure-play mobile gaming group. We have a clear vision, strategy and one of the strongest portfolios in the industry out there. The sale allowed us to return over DKK 4 billion to our shareholders, whilst also retaining a strong balance sheet that enabled us to do further M&A when we see the right opportunities. And when I look back for the year, I'm also proud to report that we finished the year by delivering on our outlook for 2022. MTG reported revenues within the range that we provided, and our pro forma sales were up by 5% for the full year. We also ended the year with a slightly higher profitability than we expected in our outlook. We had an adjusted EBITDA margin of 25%. Our growth highlights the importance of premium, high-quality and evergreen IPs and also a portfolio that covers both casual and mid-core segments across various [indiscernible] and franchises. However, the mobile gaming industry is currently also facing its first-ever global downturn. The trend that we saw in the market during the third quarter continue into the end of the year. The fourth quarter was marked by continued low visibility, and the data that we've seen indicate that the inner purchase market was down nearly 10% year-over-year, both in the fourth quarter and for the full year. The weak market has affected some of our franchises more than others. Our analysis of the data from Sensor Tower indicates that the mid-core segment, which is a home of our strategy and simulation franchise was particularly impacted. We also saw the weak environment offset some of the normal upswings that we historically have seen in the Q4. On the other hand, the market and the marketing environment for casual games overall seems to be much more positive. And if you look in the bigger picture, despite the challenging market, MTG outperformed the industry by a significant margin, both in the fourth quarter and for the full year 2022. So let's now look into the sales, and I want to give you some brief comments before we go deeper into our different franchises. We delivered 9% reported growth in Q4, and this is primarily due to strong positive currency effects. Our organic sales when adjusting for currency declined to 4% year-over-year in the quarter, and it showed a 3% decline from the third quarter in constant currencies. However, we did see a sequential growth when we're adjusting for the ad platform incentive bonus that we had reported in the third quarter. So by now, it's clear that the market in the fourth quarter has been challenging. And as I mentioned, our market is expected to have declined by just under 10% year-over-year, both in Q4, but also for the full year. Further, the low visibility that we've been observing in Q2 and Q3 of last year continued, and we also saw the market in Q4 to be nearly flat sequentially. We reported 5% pro forma growth year-over-year in 2022, and this was primarily driven by Play Simple Ninja Kiwi and Hutch, and all the 3 companies also reported growth in Q4. When we then look at things from a gaming franchise point of view, word game continues to be our largest contributor to our revenues. This partially reflected the fact that the marketing environment seems to favor casual games as well as the very active work that we are doing with the live ops and the continued evolution of our games. Franchise revenues grew by 5% year-on-year at constant currencies, and it was up 10% on an underlying basis from Q3. In reported number, word game revenues were down 5% from the third quarter, and this primarily reflected the platform incentives that PaySimple received in Q3. Our main titles in the franchise Word Trip and Word Jam, both grew by double digits sequentially, and this is thanks to a ramp-up in user acquisition spending and also the content update I mentioned. In thank to the increased levels of marketing, the franchise reached a new all-time high level of daily active users in December. The underground games continue to be the center of drivers of growth for the franchise and revenues from both World trip and Word Jam specifically. And I'm happy also when I look at it because both word trip and Word Jam peaked at #1 on the world games chart in December on different points. When we then look at new games, we have also successfully continued to scale Crossword sorry Crossword subgenre and Crossword Explorer specifically, and the game has grown over 80% in 2022. Based on the current performance, we believe that Crossword Explorer can be a major growth driver for the franchise in the future. We also took the first step towards a localized expansion of our daily theme Crossword in the U.K., focusing on the games community and the key players. Strategy and Simulation, our second largest franchise had a challenging time. As I mentioned, the mid-core segment that strategy and simulation is a part of face significant headwinds in the quarter. We do see 2 main factors here. The first one is, of course, the broader consumer spending. And the second one is the changes that Apple made with IDFA, which do continue to restrict our ability to do effective marketing. We had a healthy pipeline of content updates and live ops planned in the quarter, but that has not been enough to mitigate the downward pressure and the rising CPI levels that we've been seeing. We also saw that some of the content that we released that were designed to improve retention and monetization did not perform in line with our expectations. However, while I think that we have a lot of things to improve, I think it's important to also remember that we do continue to see established play, enjoy our strategy simulation games and spend time and money within our titles. However, the challenges as we see it now lies in onboarding new players. Despite the short-term performance issues, we do continue to believe in the quality of the games in this franchise. We did launch a browser version that is in season pass mechanic were added to the riser culture, and this helped drive both revenue growth for the game and player engagement, but this was not enough to offset the revenue decline from the more mature titles. Going forward, we are, of course, fully focused to ensure that our strategy and simulation franchise return to growth. Our main priority right now is to drive installs and then, of course, improve the retention of players, and we are looking actively at all parts of the play journey. We do know that we have a strong portfolio of franchise games, but we also have more work to do to turn this around. So let's now move to our racing and our tower defense franchise. Both of them grew year-over-year in the quarter. When it comes to racing, both Formula 1 clash and top drives had had a busy year with some major updates and also well-received game updates driving growth. Franchise revenues increased by 9% year-over-year at constant currencies, but we were also down 11% from the third quarter. When looking at the sequential decline, that primarily reflects the normal seasonal pattern that we do have in our Formula 1 clash as that is closely following the Formula 1 season. We continue to work with LiveOps during the quarter, and the 2 games that benefited from a strong black week sales were both top drives and Formula One clash and having also on top of that seasonal offers. If we look back, top drivers have had a tough few quarters, but that turned the trend around now in the second half of the year on back of the improvement that the team has put in place. This, together with major updates and changes to the game economy has clearly had a positive impact. Our tower defense franchise continued to showcase the incredible power of the Blooms IP and the passion that the player community has around the game. The franchise had another strong quarter, and it benefited from the steam sale, along with a strong performance on Apple Arcade. In addition, the games in this franchise has historically relied on organic and community-driven growth, and that continues to benefit the game in the current marketing environment. Bloons BTD6 received another major update in the quarter, and that was with the new boss and other content for the community, all being greatly appreciated. We are also very excited to announce that we're working on the future launch of BloonsTD6 to come on Netflix, and that will a development that we'll update you gradually through the year. When we then look at Kongregate, they continue to focus on its NFT gaming agenda, and they launched 2 new games in the quarter, and that was within the bitverse franchise. The company also had several NFT drops in the quarter and that generated nearly $1 million in revenues despite the negative sentiment around NFTs and blockchain market that we do see around us. So looking forward then into 2023 and beyond, we feel that we have a very exciting pipeline of new games and updates that we look forward to bring to the market. If we're starting with, we're excited that bloons TD6 will launch on Netflix. And as I said before, we will come back with you more information as we have it and when the timing is right. Turning the eyes to Hutch. They are also getting closer to launching 2 new games. Both games draw on the studios, stronger leading expertise in racing and racing theme games, and both games are also connected to major global racing IPs. -- Ninja Kiwi on their hand, they are working on 3 new titles, and we're hoping to introduce to you them back in 2024. So you'll have to wait a little bit longer to get some data on back on those games. They're still having [indiscernible], which the team continued to work on and doing ongoing improvements. Right now, we are not investing in UA, but hopefully, we'll come back to that later in this year. And then we're having InnoGames. They will continue to scale the 2 live games, RiserCulture and Sunrise Village, and I do have an active pipeline of both content and updates for both games. We do still believe in the potential of those 2 games in the development pipeline. But I think it's fair to say that we're not happy with the sequential performance that we saw for Q4 in these games. And then last but not least, Kongregate is also working on a new game. And that game will draw upon a well-known global IP. This is a traditional game so that is not within their NFT space, and we hope to be able to tell you more as well about that towards the end of this year. If we then look into our daily active users. Our total number of daily active users grew by 1%, while monthly active users remained flat on a sequential basis. The performance reflected the growing number of players in our world games franchises, which just about offset the decline in our Strategy and simulation franchise. Our average revenue per daily after users increased sequentially by around 1% in constant currencies, and this was primarily improved by the monetization from our tower defense game as well as our Word Games and casual games portfolio. Fort of Empire, Word Trip and word jam continue to be our top 3 performing titles. And these games, if you take it together, represented 44% of our revenues in the quarter, and this can be compared then with 40% as it's set in Q3. The difference between Q3 and Q4 is primarily driven by the platform incentive that Play Simple received in Q3. I will now hand over to our CFO, Lasse, who will then walk us through the profitability and the financial dynamics.

[Lasse Pilgaard, executive]

Thanks a lot, Maria. So if we turn our eyes to profitability first, we delivered 22% adjusted EBITDA margin in the quarter, which took the full year to 25%. This means that we deliver profitability above the updated guidance that we provided in Q3 and basically landed above the 23% to 24% that we guided. Overall, we're happy to have delivered a strong margin in a year with a difficult market condition, as Maria has mentioned a couple of times. The high margin was achieved through a combination of 2 things primarily. One was that we had lower UA spend as a result of a continued diligent focus on returns, where we chose to not scale investments in instance where we basically saw that the threshold for our return was not met. We also achieved this through a strong focus on cost in general. And of course, in a market that is developing as it is, we have also had to be more diligent to ensure that cost is where it should be. When we look at simple cash flow metric, our adjusted EBITDA less CapEx. We landed at 17% as we maintained similar CapEx levels as we had in previous quarters. We have, however, started to see slightly higher levels due to increased game development efforts in especially Hutch, as Maria mentioned, in InnoGames on specialty life games and in kongregate on multiple new titles. Just looking at the bridge between EBITDA and adjusted EBITDA. The 2 main items that is worth mentioning this quarter was EUR 9 million in M&A costs, which cost is related to multiple different smaller processes as well as SEK 16 million bonus in play simple, which stays back to the transaction that we had when we acquired them. And basically, this bonus will last until 2024, as I mentioned a couple of times. So until then, it will be sitting on a liability on our balance sheet and be released after that as the bonus is being paid out. So looking more into UA. We managed to increase our UA investments in the quarter to SEK 559 million corresponding to 40% of revenue, Play simple in particular, increased their marketing significantly and managed to scale their marketing efforts on the backside of new game launches, especially -- we had initially expected even higher spend for the quarter, but the challenging market environment for especially InnoGames meant that they chose not to scale the marketing to the planned level. We do continue to see the impact from IDFA, especially in the mid-core part of our gaming portfolio as it is more difficult to find that next download or the next paying players, given that we have less abilities to really target the advertisement versus what we had before. This, in result, drives higher CPI, so cost per install and forces us to lower our marketing spend to basically protect the return on our marketing spend also called the ROS. So to mitigate this, we are working with the games to change our early game onboarding, the communication in the early part of the game. However, we haven't been fully successful in this yet to fully mitigate the impact. And of course, we are continuing to work on this, but it will be a continued development effort that we need to achieve over the months, quarters and probably years to come given this regulation. Although we do see an overall negative impact from IDFA on our abilities to scale marketing, we are also really happy to see that the diversified portfolio we have is really coming to its rights. So especially Ninja Kiwi that is not relying on classical marketing had a strong quarter and have had multiple strong quarters. You're also seeing that play Simple that has a more cash flow portfolio with a broader appeal, so less need for targeted segmentation is also doing very well in this environment. So turning to cash flow and cash conversion. In Q4, we generated SEK 81 million in free cash flow, which corresponds to 27% cash conversion. The relative low cash conversion in the quarter was primarily driven by the negative impact from net working capital in the quarter, where some of our larger marketing partners, we changed the payment schedules to them. This basically created this one of negative net working capital. And hence, it's not expected to go forward. We are not fully certain either whether the amount is going to be fully reversed, but it's definitely not going to continue as a negative. This means for the full year, we delivered a cash conversion of 46%, slightly below the target of 50% to 60%. But again, very much driven by the net working capital for the full year. And given that we don't expect that going forward, we do feel comfortable in the target we have set because if you reverse that total net working capital, we would actually have been at 60%. So again, defending a bit why that seems to be the right targets. On cash, we ended up the period at slightly less than SEK 5 billion in cash and tax equivalents, and we still have no financial debt outstanding. This creates a continued strong balance sheet to enable our organic and inorganic investment strategy and to continue to pay off or fund our earn-out liabilities. Just on the earn-out liabilities, we did a slight increase in the quarter as a result of a very strong Q4 in Ninja Kiwi, continued high growth for PlaySimple and a strong game pipeline for Hutch...

[Maria Redin, executive]

To wrap it up, our full year results enabled us to deliver sales in the lower end of our provided outlook with profitability that was actually slightly higher than expected. Overall, I would say this showcases the diversity and the strength of our IPs and the games portfolio. To put it on a high level, I mean, we have always been believers that evergreen ISPs supported by strong player communities will outperform the overall market. And if you look at our performance in 2022, that also supports this thesis. If we then look at the market and given the expected decline that we've seen, we also believe that we've taken significant market share during 2022. And we will, of course, use that foundation to continue to build the group as we look forward now into 2023. We provided you with a long-term outlook, and we will say that is remaining unchanged. We believe that the mobile gaming market will be supported by healthy long-term tech, demographic and social trends. And we also believe that we have a well-diversified portfolio of premium assets and IPs with strong player communities. And we believe that we are well positioned, therefore, if you take the IPs, the portfolio and also the people in the group, we believe that we are well positioned to continue to take market share over the medium to long term. Then when we look to the short term, we do feel that it's too early to provide market with some more information at this stage, and there are many reasons as we look into that, primarily because as we look at the short-term trend, we still have very low visibility. The same one we'll begin to experience now in the third quarter, we saw continue in the fourth quarter. And then we, therefore, because of that, expect to be able to come back and provide you with an updated outlook for the remainder of the year as we announce our Q1 results in April. So I want in all, as I look back to 2022, it's been actually quite amazing and exciting year. We've done some significant progress when it comes to our vision and strategy. But of course, even though we come far away, there is still a lot of work to be done to ensure that we can deliver and become the gaming village that we believe we can be for the long term. We want to continue to build on the pillars that we announced on our flow platform, and we know that all our studies are fully focused on driving performance in our current games as well as I also presented to you some of those new games that we want to bring to the market and that should create excitement for 2023 and onwards. And last but not least, we also have significant firepower, as Lassse said, and we believe that there will be opportunities for MTG to be an active driver in the industry consolidation going forward. So having said that, I want to thank you for following our progress, and I do look forward to sharing more updates with you in the coming months. Thank you for listening in, and over to you, Anton.

[Anton Gourman, executive]

Thank you very much, Maria, and thank you, Lasse. We are now ready to take your questions. We will first take your questions from the teleconference and then proceed to the online questions. So with that, thank you, operator. We are now ready to take your questions.

[Operator]

[Operator Instructions] the next question comes from Simon Jonsson from ABG Sundal Collier. Please go ahead.

[Simon Jönsson, analyst]

Maria. First, I have a question about the lower marketing efficiency you experience right now because of the [indiscernible] changes. In this new normal, what needs to happen for the efficiency to improve again that would improve the performance of InnoGames. This without considering the weaker consumer right now because you said these are 2 different factors. I'm trying to understand when we can see an improvement. You don't provide any guidance here, but have the conditions worsened or improved recently?

[Lasse Pilgaard, executive]

Simon. No, so I think the conditions haven't worsened. I think we're just starting to see a more clear effect of what was actually coming from COVID, you could say headwinds or coming out of COVID, what was coming from macro and what was actually coming from IDFA. And in our previous quarters, we also did say that it was difficult to isolate each effect and now we can see a bit more clearly what is what in this. And to your question on what action needs to improve. For us, it's definitely 2 overall areas that we're working on. One is the more one focused on marketing, where getting our models trained with the new data of what actually works in post-IDFA i.e., targeting to a broader segmentation of players where you don't have the same knowledge on what other games are they playing, et cetera. understanding those channels that work and the optimization in terms of advertisement is one where I've called scale in the group helps us a lot because we also have observations from a lot of different genres to pair in. And then the other part, as Maria also mentioned, is to actually work with the games and say, now that a game is less targeted. We need to make sure that even so targeted to the audience that download it, we need to make sure that a broader segmented audience actually gets playing on the game and sticks with the game. So that's also why I said that there is a new IDFA world that we are adapting to and hence, that's both on adoption of our marketing side and on our game design and development side. And of course, giving you a specific time horizon is difficult because each of our studios see this differently. For InnoGames, of course, it is -- we are working with a lot of things. It's not going to be one thing that fixes it all for every game, but we definitely do see a strong pipeline of different projects where we believe that many of them will have very concrete effect also in the shorter terms. But of course, fully getting on the other side of IDFA, I think it's difficult to really say when that potentially happens and how does that look like? I think it's just a new normal that we are acting with them.

[Simon Jönsson, analyst]

All right. And you have also said before that you work with applying InnoGames marketing capabilities on Hutch. Could you give an update on how that is developing?

[Maria Redin, executive]

Yes, Hi I can take that one. No, we're quite excited about that. And I think it's more of the tools as such. So what we've done with the Flow platform is that we elevate the tools that we're having, very specifically counter-mapping, which means that now Hutch can actually run marketing in a much more optimized manner. And then we're also having our CMO, Christian Pern. -- actually being on site on the ground to making sure also they know how to best utilize them. So we do expect to see tangible results during 2023 when it comes to this. And of course, it goes very nicely hand-in-hand also that Hutch actually had 2 games that we are excited to be able to bring into the market this year.

[Simon Jönsson, analyst]

All right. Interesting. A last one for me here about acquisitions. I'm wondering what are the valuations of the targets you look for currently?

[Maria Redin, executive]

I would look at the question different, to be honest, it's more what are we looking at that will complement our current gaming village and where we are. Then you need to look at to see what are the valuation we believe is the right for that asset and have now the market sort of come to terms on what are the new normalization on valuations. We talked about a gap before. So it's more about we want to make sure that we find companies with strong evergreen IPs. Of course, having a strong stand-alone profile, but more importantly, also have a nice fit to base on where we are, the casual to mid-core genre, that you have a good affinity to the games where we are at, so you can actually leverage that reach because for all the points we just discussed on IDFA, having a relevant reach that you can leverage, whether that is for cross-promotion purposes or if that is for ad tech purposes, -- we are firm believers that that's got to be even more relevant going forward. So that's what we're looking for. And then the target needs to make financial sense as well. And I think that's where we are closely following the market and where it's going and keeping contact with the relevant parties, we believe are interesting.

[Simon Jönsson, analyst]

Yes. I understand it needs to be at the right valuation for you, but I'm wondering what the current multiples are on the private markets on this kind of companies.

[Lasse Pilgaard, executive]

So of course, there's not one set of numbers here. And the companies that are doing fantastic and have games that are scaling, working and growing will always be higher than the ones that are struggling in this market, et cetera. And as you know, we have a model where we're not doing turnaround cases in the sense that we take that IP and run it in a different way, we really back successful entrepreneurs and successful companies. And of course, there, is still a situation where they don't need to sell. But I think it's fair to say that valuations have approached the public market quite a lot. Of course, on a like-for-like basis, you need to look at cash conversion multiples where private typically don't have a lot of other items than the normal revenue and cost. And in that comparison, we are at least not seeing that significant gap anymore. Of course, there's still a gap, and there probably always in this market, at least be some kind of gap also considering control premiums, et cetera. But I think it's fair to say that a lot has happened, and we, of course, expect that gap will continue to narrow as time goes by.

[Simon Jönsson, analyst]

All right. But would you say that the valuation is more of a problem than finding the right targets right now.

[Maria Redin, executive]

That's a good question. No, but I think the valuations to Lasse's point has come down. So I think the valuation are being more realistic and then it needs to come by in to say what is then the combined entity? What are you creating? And when is the right timing in their case.

[Simon Jönsson, analyst]

All right.

[Operator]

The next question comes from Thomas Singlehurst from Citi.

[Thomas Singlehurst, analyst]

Yes. Good afternoon. It's Tom here from Citi. A couple if it's okay. On the impact of privacy-related changes. I mean, obviously, Apple IDFA has had an impact. I'm interested in whether deplication of third-party cookies on Google when it comes through, will make things worse? Or should we view it as the majority of this as an impact both for you and for the market is behind us -- that's the first question. Maybe I'll come back for a follow up.

[Lasse Pilgaard, executive]

Yes. So Tom, of course, it's a continuous speculation on what will Google do and when will they potentially do it. And I think even in the 1 year I've been with MTG, it's been postponed a couple of times in terms of a potential thing they will implement. I think everything is pointing in a direction where they will do something at some point, and it's likely going to be less strong in the implementation than the one Apple has done. Also, Apple and Google looks very different in the way that their revenue and like how important, especially the advertisement and marketing part is for them, and it also looks like Apple probably can see now in their numbers, at least the activity on their app store relative to the activity on Google stores is actually changing or going down relatively, that they might have implemented it a little bit too strong. So I think still Google is waiting out and not doing anything until they're forced. And then when they do something, I think they learn a lot from the way Apple did and probably try and see less impact on their app store activity. So of course, if and when that happens, there will be some impact on Android. However, we've also seen that a lot of marketing spend has actually been shifted to Android due to Apple and hence, that might actually even it out and create a bit less competition on Android. So it's a lot of speculation and we don't know what happens in the meantime on platform fees, et cetera, et cetera. So I think we're doing what we can to mitigate current environment, and then we'll have to see what happens with Google.

[Thomas Singlehurst, analyst]

Very clear. And then, I mean, on the outlook, I completely understand whilst market visibility remains low, but it makes sense to hold off until you've got a bit more of a sense of where things are settling out. Just to be clear, though, even if we don't know exactly where the market will end up, are you fairly sure 23 will be another year of relative outperformance for MTG?

[Maria Redin, executive]

No, I think I said it in my outlook. I mean with the game portfolio we're having and consistent we've been improving in Q1, Q2, Q3, Q4, we outperformed the market. So that is something we are expecting us to be able to continue to do. And we are firm believers that in the mid- to long term, the market will come back to growth again because all the drivers are there. I think when we just look to the short term, our visibility on the market is limited, and that's why we would like to sort of wait and come back to Q1, but we still believe that with our portfolio, we should continue to be able to outperform the market.

[Thomas Singlehurst, analyst]

That's fair. And then I suppose in that context, though, I mean, obviously, a lot of excitement and anticipation around the topic of consolidation. I suppose the question is in the context of your confidence about outperforming, does it matter if you participate in broader consolidation? Or another way, if consolidation happens elsewhere in the market. Is that something that could impact your relative performance do you think? Or is it rather largely independent?

[Maria Redin, executive]

I think, of course, we're always mindful what's happening around us. And I think that is important to do so. I think what we're very focused on is finding the right target for us. I don't think to consolidate and be bigger for the sake of being bigger is important for us. It's about finding that relevant additional acquisition that has sort of an affinity to where we are today, so you can actually leverage that reach, then I think that we can become even stronger if we actually drive and be part of that consolidation. But it needs to be relevant size that we're adding to our current portfolio because otherwise, that doesn't make much of a difference for us.

[Lasse Pilgaard, executive]

I think, Tom, to your second part of the question on how are we impacted by others consolidation. I think it's really difficult to tell because if you're looking at historical consolidation, there's been many different structures where some of them have not really been successful because there's been an increased focus on profitability versus growth, et cetera. And of course, that will impact a lot how that potentially also impacts [indiscernible]. So again, the market is very big. We are still fairly small in the total market. And hence, we focusing more on what we do than what others are doing here.

[Thomas Singlehurst, analyst]

Very clear.

[Operator]

The next question comes from Rasmus Engberg from Handelsbanken.

[Rasmus Engberg, analyst]

Yes. Maria, and the rest of the team as well. I had a question on strategy.I understand you don't want to guide for the market, which makes sense, suggesting it's still quite low visibility and probably trending downwards a little bit. But in terms of your strategy, you have throughout this year, been very cautious with your spending, i.e., prioritizing your defending our margins rather than growth. What should we make of this going forward? -- given that we still are in uncertain markets.

[Maria Redin, executive]

No, you're absolutely right. I think, however, if you drill down into the different companies, we've actually been scaling up and scaling down within the different companies. So as Lasse said, I mean, Play Simple has been able to really deliver on the marketing investments in full for Q4. So I think that whilst in totality, for example, in Q4, we were not able to spend all we wanted to do for some of the companies we definitely did. Unfortunately, for Innogames in particularly, we didn't. And I don't think we will ever move away from that principle that as we invest the dollar, we want to make sure that more than that dollar is coming back to make sure that we invested smartly. Otherwise, we will hold that investment, make sure we build the games where we have an interesting pipeline of features for Innogames, different games, both to help the sort of onboarding the retention and the monetization. And as we see that work, we want to scale up marketing again. So I think as much as we want to drive growth in our games, we will always make sure that we are investing wisely. But you need to also remember that within the different companies, we can scale up and scale down and also down to game level. And we do have a lot of games that we actually put quite significant marketing dollar back on

[Rasmus Engberg, analyst]

So in general, would you anticipate that for the first half of the year that maybe that the winners that you've seen in -- that has driven your outperformance or the other [indiscernible] are likely to continue to do so in onto the first half of the year, i.e., Ninja Kiwi and Play simple mainly in particular.

[Lasse Pilgaard, executive]

Think at least if you of course, we're not guiding on Q1 here, Rasmus. But if you look at the momentum from Q3 to Q4, we can at least repeat that underlying growth was really strong for Play Simple, both when it comes to Downs in revenue. And of course, with a lot of marketing spend for them in the quarter, that's normally something that then creates an even higher level of revenue in the months to come. That's how the business model works like. And if you have, for example, in InnoGames, you did see a sequential decline from Q3 to Q4. Normally, there is not a negative seasonality between those 2 quarters so that you can also make off yourself in terms of what does that mean for the quarters to come.

[Rasmus Engberg, analyst]

And just finally on strategy. I mean, strategy is also quite a bit impacted by new games. So what -- is there anything in the pipeline? And could you also elaborate what are specifically the games that that plays in the lower because I didn't see anything material in the statistics.

[Maria Redin, executive]

It's -- if you go specifically on Play Simple, it's a Crosswork Explorer. That is the biggest game that they've been scaling up. Then there are some smaller games that put into soft launch, and then they are coming more this year. I would say, if you look at what is truly exciting that we look forward to this year, I think it's a 2 Hutch games that are to on back of very strong brand IPs, which is also something that we see in this market that if you look at what -- in which areas have we been more successful in running marketing, it's really on the casual side with easy onboarding or it's actually on back of games with a strong IP, where you can have a sort of that recognition label to it. And that's why we're quite excited about the 2 games that Hutch has, we're getting BTD6 on Netflix, which is, of course, exciting. The pipeline that Ninja Kiwi have is quite amazing, and they're still working on balance, too. And then also Kongregate is launching a game for 2024. So unfortunately, that is still 1 year to come, but that is also a game that looks extremely promising. And again, it's also back on a very strong brand IP. So there is an exciting pipeline. I would say where we're putting our work at labs on is really in the 2 InnoGames games, Rise of culture and Sunrise Village. And there are so many great looking promising KPIs on those, but we need to make sure that we find a way to do better marketing on back of those and improve the monetization as the customers comes in.

[Operator]

The next question comes from Martin Arnell from DNB Markets

[Martin Arnell, analyst]

My first question is, I understand that you don't want to guide for the full year without updated market forecast for the year. But given the visibility right now, can you say anything on how the year has started in terms of organic trends if you compare to Q4?

[Lasse Pilgaard, executive]

I think maybe just adding in the guidance, right. As you said, there's a good reason we haven't chosen to guide yet and the like first time we guided was for at least a long time in the gaming part was actually this year and there we also guided April and feels that's the right thing to do again. And of course, I know that everyone had hoped for a full year guidance today. I think if you look in isolation on January, I should also know we can't really comment a lot on what happens outside the quarter. So I think we'll have to leave it with that, unfortunately.

[Martin Arnell, analyst]

Okay. But I mean, given the low visibility and how the court has started, you would sort of reduce a lot of uncertain questions here if you would give any kind of indication?

[Lasse Pilgaard, executive]

But I think it's fair to say that we have seen no surprises in January. So of course, we made a plan for the full year. And so far in January, we are following that fairly well. So there's been no market surprises. I think eCPMs are following the typical patterns, i.e., they're very high in Q4 and then they drop or stabilized in the beginning of Q1. We had a lot of marketing spend that we spent on the end of Q4, where we're seeing the customers, of course, coming in, in the first 2 quarters. So we're not seeing anything surprising. I would say, from a cyclical point of view, January looks very much like it normally does.

[Martin Arnell, analyst]

And when it comes to your plans for the UA in the quarter. Can you say anything on big projects or anything that stands out?

[Lasse Pilgaard, executive]

You mean UA spend, so total levels?

[Martin Arnell, analyst]

Yes.

[Lasse Pilgaard, executive]

So typically, at least if you look at our historical spend in Q1, it's a strong spend quarter, especially from InnoGames and the , you say, more the mid-core part of our segments. Typically, also, we're seeing a placebo with low CPMs give some interesting opportunities still to market, not as strong as Q4 but still strong. So from an overall yearly cycle, Q4 and Q1 are always the 2 strongest and Q2 and Q3 are the weakest -- whether that enables us to fully keep that high level that we saw in Q4, probably difficult to say, but it's still fair to say that Q1 is a strong marketing quarter normally.

[Martin Arnell, analyst]

Okay. And just on this net working capital effect in Q4 where you had to pay some marketing to partners early. Can you just elaborate a little bit more on that Lasse so that we can understand it a bit better.

[Lasse Pilgaard, executive]

Yes. So basically, we had a, I would say, a way of paying our marketing spend. So this is for the traffic that we buy, i.e., our UA with specific payment terms, and there was a different interpretation on the other side for some specific ones where they believe that, that should be paid a bit earlier. And hence, we changed to that, i.e., that we started paying that slightly earlier, whether we'll go back and get those extra days, and we're not talking about a long time, but days here means that you're jumping on the other side of a month and hence added into a quarter, and that basically just meant that that we added in an additional, as I indicated, around SEK 100 million into Q4 of spend that normally would have been paid in Q1. But of course, for that to come back as a positive, we would need to go back to the old payment cycle, and that's still what we're evaluating based on how you read the interpretation of the contract, et cetera. I think the most important thing for your modeling, et cetera, is that it's a nonrecurring event. So of course, the question is, will we get that EUR 100 million back from a net working capital point of view, but it's definitely not something that will be a continued decline when you're looking at 2023.

[Operator]

There are no more questions on the teleconference at this time. So I hand the conference back to the speakers for any written questions.

[Steen, analyst]

So we have the first written question and I apologize if I said the naming correctly from Steen [indiscernible]. So first, congrats on solid performance for the quarter. Can you comment on the nature of the M&A candidates that you're assessing considering the size of your balance sheet and growth ambitions?

[Maria Redin, executive]

No. But I think we never such comment specifically about M&A targets. But I think we're looking at 2 different buckets you can argue. One part is probably the more sizable one where you actually drive that relevant scale, which needs to be sort of adjacent to where we are. So you need to see some sort of overlap of Stronger where you can actually utilize that traffic and relevance. I think that the other part where we are looking at is game in the early scaling phase, which we call growth investments, which is sort of in the early growth phase, maybe just a single title. But where we can actually onboard them and they can leverage our flow platform and where we can actually utilize those capabilities. So -- and of course, they will not take a lot of that capital that we have on the balance sheet, but could rather be something that is strategic, and that is growth driven for us. So it's a really 2 different types, and that will be very 2 different sizes of acquisitions.

[Steen, analyst]

And I think that answers the follow-up question, which is are there any approximate optimal size of the acquisition suitable for MTG's new operating model as well as are there acquisitions? Are you prioritizing acquisitions in current priority segments or focus on adding new categories.

[Maria Redin, executive]

I would say adjacent categories is something that is a priority to make sure that we can create a customer journey within our audience reach. I think that is super relevant. I'm a firm believer in cross-promotion. I'm a firm believer on building out ad take, which is something that we're working with Play Simple on. And that's why you need to have that affinity between games, otherwise, it simply doesn't work. So of course, going deeper with the broadening where we stand, I mean that makes a lot of sense.

[Dennis Berggren, analyst]

And then we have one more question from Dennis Bergen. What factors are supportive to organic growth above market levels, given that you will face tougher comps in 2023 due to play simple's platform migration payments.

[Lasse Pilgaard, executive]

I think it's a fair question. And of course, we do realize that given that migration payment that came into 2022, that or those comps will be higher, and it could mean that some quarters is difficult to achieve because it's sitting in Q1, Q2 and Q3. But still, if you're looking at our ability to outgrow the market in 2022, the market is estimated to decline about 10%. We grew 5%. That's a 15-point difference. We still believe with the traction that we have in Play Simple, the pipelines that we have in our other studios that is achievable. But I think it's a fair call out to say the uncertainty in how far on that or how ahead on that ambition will be determined a little bit by that quite significant bonus that sits in the baseline of 2022.

[Anton Gourman, executive]

[operator Instructions]