Next Games - Shroud of uncertainty yet to lift

Next Games’ had pre-announced Q4 revenue and EBIT of EUR 11.3m and EUR -1.6m and the most significant news was the discontinuation of a games project that had proceeded to production. We have lowered our 2019 and 2020 revenue estimates by 15 % and 21 % respectively. We retain our HOLD rating with a target price of EUR 1.5 (2.0)

One project discontinued, another started

Next Games revenue and EBIT in Q4 amounted to EUR 11.3m and EUR -1.6m. Profits improved significantly from the Q3 operating loss of EUR 10.3m, that was burdened by TWD: Our World marketing cost, but remained negative due to product development costs. Next Games announced that the game project with Universal Games and Digital Platforms has been discontinued. The project had proceeded to production and was after Blade Runner: Nexus the game furthest in the pipeline. Next Games started a new game project, that currently does not have an external IP attached to it, focusing on a new game concept.

2019/2020 revenue estimates lowered by 15%/21%

We have lowered our 2019 and 2020 revenue estimates by 15 % and 21 % respectively due to the discontinued game project and lowered Our World estimates. Although ARPDAU metrics in particular improved favourably during Q4 (both NML and OW), we have yet to see signs of significant growth in OW active users, which would be much needed for sales and profitability improvement. The new games pipeline still remains decent, with two projects tied to a third-party IP along with the new game concept project in concepting and Blade Runner: Nexus in soft launch. We expect profitability in 2019 to improve due to the savings program but to remain negative, with our estimate at EUR -5.3m.

HOLD with a target price of EUR 1.5 (2.0)

The near-term uncertainty in our view remains high due to the estimated negative profitability in 2019 and Next Games’ decreased cash position. We retain our HOLD rating with a target price of EUR 1.5 (2.0).

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