MAG Integractive

The mobile gaming company MAG Interactive was introduced on December 4, 2017 and has since been seen by many as a failed turn-around. After several years of high profitability before the listing, an acquisition of FEO Media AB (the Quiz Duel) was listed on the stock exchange. An acquisition that was completed not long before the listing. Since the IPO of SEK 44, they have largely succeeded in this:

1. Purification of Quizduel. It took almost a year to get the Quiz Duel in order, which had a messy code base. They also had to make major organizational changes and notify staff in the old FEO Media. The acquisition of Quizduel has finally been brought under control and is now out with the successor New Quizduel, which is built on a better code base and with greater opportunities for monetization. However, the process has taken a lot of time and focus for MAG’s management, but now everything is in place.

2. Game releases in the form of Paint Hit, Word Domination, New Quiz Fight and Wordzee. We return to a couple of these.

3. Broadening and sharpening of the organization. Not least in terms of the studio in Brighton that has joined MAG through the acquisition of Delinquent five years ago. The changes in MAG have been major and several difficult decisions have had to be made. But my assessment is that the organization is now starting to settle down.

4. The acquisition of Primetime in August 2020.

The company presents itself as “data-driven” and the management consists almost entirely of engineers, even on the CFO chair. Rather than spitting out lots of games, they work methodically and data-driven to get high accuracy on game releases and optimize marketing and management of the game portfolio.

Management and owners The owners have held tight to their shares and also increased their holdings at low levels. No institutions are on the buying side and I do not expect them to show up before MAG has proven that the deal is profitable by printing black numbers. The share will probably not be traded below SEK 30 if MAG succeeds and institutions want to enter. Most of the founders remain in the company and on the list of owners above. Didner & Gerge has scaled down somewhat during this summer’s high price levels. We can believe and hope that the big owners have the patience to own until MAG scales up the business. It has many senior employees, a flat organization and teams with high self-determination, which differs greatly from several mobile gaming companies that invest in a large number of employees in low-wage countries who “crunch” forward game after game. M&A The management shows no tendencies to want to sell the company. They chose to take it to the stock exchange in 2017 to build something big. Since several companies, mainly in the US, are aggressive in M&A, they have probably been courted / monitored by companies such as Zynga or Scopely who both invest heavily in word games and will not miss Wordzee if the game rises a few more positions on the lists. The fact that MAG has over 2 million DAU also makes it attractive as it would have a visible effect even on large companies such as Zynga. A former company would probably see the large player base with low ARPDAU as something with high potential to develop or use as a base for crush marketing into games with higher ARPDAU. As for MAG’s own ability to buy companies, my feeling is that they now want to shift focus to the balls they have in the air during the autumn. MAG buys companies where you find logic and synergies with an acquisition, which also means that it is a significant job to both do DD and plan future integration. Which is almost unusual in today’s M&A heat, which is more about stacking as many acquisitions as possible on top of each other at a rate that is so high that no one has time to analyze the basic business. At the same time, you never know, if opportunities arise, it can go fast. MAG has a wide network of contacts. A major acquisition would be very welcome as it would put the cash of over SEK 150 million into work.

Summary I see MAG as a reasonable case for those who have the opportunity to follow developments and increase their position when the company performs. For example. on new top results for Wordzee. Due to the relatively low liquidity, institutions do not have the same opportunity. I myself have several scenarios that are significantly more positive than what was presented above and I want to own shares already now as long as I think those scenarios are “in play”. I believe that a doubling of the market cap is reasonable in 24 months if the example scenario plays out, at the same time as I consider it unlikely that the share will fall more than 25% even if Wordzee and NQD go half-heartedly. The big downside only occurs if Wordzee or NQD “runs in the ditch”. Other risks include IDFA (identifier for advertisers), which means reduced opportunities for targeted advertising on iOS. There may be a separate post. The most optimistic scenario is primarily based on Wordzee becoming one of the world’s largest word games on mobile. Then I think that Wordzee alone can be worth 2 billion. See e.g. on the acquisitions that Zynga and Take-Two completed in 2020. Overall, I think that MAG, despite good price development over the past year, still has good potential relative to the risks.

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