G5 Entertainment - Q1’21 largely in-line with consensus

Q1 EBIT SEK 60m, -0. 3% vs. ABG, +3. 3% vs.

cons Prel. cons. ‘21e EBIT estimates up by 2-3% Conference call at 08:00 CET Q1’21 details and ‘21e outlook G5 Entertainment reported its Q1’21 earnings today, which was in-line with consensus profitability, with an EBIT of SEK 60m, -0.

3% vs. ABGSCe and +3. 3% vs.

consensus, corresponding to an EBIT margin of 18. 3%. The greater than estimated profitability was driven by both an improving revenue mix, where G5’s own games comprised 63% of revenues in Q1 (up from 45% in Q1’20) due to successful new releases, but also by lower than estimated User Acquisition (17.

2% of revenues vs. ABGSCe 21%) where management cites improved efficiency within the UA efforts. Reported net sales amounted to SEK 327m, -4.

8% vs. ABGSCe and -6. 2% vs.

consensus, which offered a total y-o-y growth of 4. 7%. However, given that G5 derives over ~60% of revenues from the US, revenue growth in Q1 in USD terms was actually 22% y-o-y (ABGSC was at 20.

2%). In terms of 2021 management cites a continued strong performance from its internally developed titles and G5 will release another 6 games in 2021. In terms of the recent Microsoft store fee changes management expects a strong positive effect on margins citing that a few percentage points is possible.

We expect 2-3% consensus ‘21e EBIT revisions We could see consensus making positive EBIT estimate revisions for ‘21e of 2-3% on the back of the report itself. However, we also note that the MSFT store fee effect has not been included by all analysts yet. Final thoughts G5’s share has been very strong so far this year, up ~53% YTD, driven both by the strong Q4’20 report (which featured an improving revenue mix and stable UA spending), and Microsoft lowering its revenue split for on its gaming storefront from 30% to 12%.

There is a conference call/webcast today at 08:00 CET, webinar ID: 941 1796 1471, dial in SE: +46 (0) 8 5016 3827, UK: +44 (0) 208 080 6592, US: +1 301 715 8592, link: https://zoom. us/j.