Next Games - Welcome turnaround progress

Next Games’ profitability saw improvement during Q2, with the adj. EBIT rising to EUR -0.5m (Q2/18: -2.0m). Revenue grew 65% y/y to EUR 9.4m but was below our estimates mainly due to a lower than expected DAU for Our World. Development of the financial situation saw positive signs, but game launch financing still remains a concern.

Earnings improvement and mixed Our World progress

Next Games reported decent Q2 results, with EBIT still in the red, at EUR -1.1m, but seeing improvements and in line with our estimates (Evli EUR -1.0m). The adj. EBIT was slightly below our estimates, at EUR -0.5m (Evli 0.1m). Revenue saw growth of 65% y/y to EUR 9.4m, below our estimates (Evli 10.4m) mainly due to a lower than expected DAU for Our World. Q2 did however see the game’s ARPDAU improve to a commendable EUR 0.34 (from IAP’s). Retention issues, however, led to marketing investment levels for the game rising to above planned levels.

Financial situation progress but concerns remain

We have made some adjustments to our estimates, mainly due to having revised our launch timetable estimate for Blade Runner Nexus from Q3/2019 to Q4/2019. Our estimates also include a minor adjustment for marketing revenue from Our World, which based on figures posted in Q2 shows promising revenue potential. We expect revenue in 2019 to grow 21% to EUR 42.5m (prev. 47.8m), while expecting profitability to remain negative, with an adj. EBIT of EUR -3.0m (prev. EUR -0.5m). A key near-term concern remains the launch of Blade Runner and financing of any more substantial marketing investments that are to be expected in conjunction with the launch. A positive sign for the financial situation was the stabilization of the cash balance and a renewed credit limit guarantee.

HOLD with a target price of EUR 1.50

Next Games turnaround project has seen good progress and earnings have seen improvements compared to the near past. With the uncertainty relating to financing of upcoming game launches justifying valuation upside remains a challenge and we retain our HOLD-rating and target price of EUR 1.50.

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