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Original-Research: Media and Games Invest SE (von GBC AG):

24.03.2022 um 09:31 Uhr


Original-Research: Media and Games Invest SE - von GBC AG

Einstufung von GBC AG zu Media and Games Invest SE

Unternehmen: Media and Games Invest SE
ISIN: MT0000580101

Anlass der Studie: Managementinterview
Letzte Ratingänderung:
Analyst: Marcel Goldmann

24/03/2022 - Management interview with Media and Games Invest SE

'We want to become one of the world's top five advertising software

Media and Games Invest SE (MGI) is a profitable and fast-growing company
active in the digital games and advertising markets. The company's core
business is an advertising software platform that enables advertisers and
publishers to efficiently acquire customers for their products and to
achieve the best possible monetization of advertising space in their
content. In addition to organic growth, strategic acquisitions of companies
and their consistent integration into the Group form an important
cornerstone in MGI's growth strategy. In 2021, the company grew by over 70%
for the third year in a row. This includes revenues of EUR 252 million,
with a strong EBITDA margin of 28% and organic revenue growth of 38%. Net
profit has increased by approximately 117% to EUR 16 million.

Against this background, we took the opportunity to interview Paul Echt,
Chief Financial Officer (CFO) of the MGI Group, about the company's
development to date, its strategy and its prospects.

GBC AG: A few weeks ago, MGI published its financial results for the past
fourth quarter and for the full year 2021. Based on this, the company was
able to successfully continue its dynamic growth course at quarterly and
full-year level. What is your conclusion for the past financial year and
what can investors expect from MGI in the current financial year?

Paul Echt: 2021 was indeed a very successful year for us. In addition to
five M&A transactions - with an aggregate purchase price of over 260
million euros - we also continued to strongly expand our organic revenue
growth with 38%. Here we saw how the network effects of our advertising
software in connection with our own games, which we combine in the so-
called 'MGI Flywheel', continued to gain momentum. We expect further
network effects from the combination of both areas in the current year. In
numbers, this means mainly organic driven revenue growth of around 15-23%,
which is reflected in our 2022 guidance. Parallel to further organic
growth, we want to make further strategic acquisitions. The investment
focus here is on mobile games in the games sector and on demand side
platforms in the media sector, which further optimizes customer acquisition
for mobile games. It is also important to note that M&A transactions are
not included in the 2022 guidance and represent additional upside.

GBC AG: You mentioned the Flywheel, what can one imagine by this and what
positive effects and advantages result from this for the MGI Group?

Paul Echt: The MGI business model is based on the flywheel. This is driven
by network effects between advertising technologies and owned games, and
further accelerated by M&A and innovation. In summary, a stronger
proprietary games portfolio - with a broad user base, proprietary
advertising space and associated first-party data - will lead to more
advertisers using the MGI platform for user acquisition, as it can reach a
broad audience based on first-party data in a highly targeted way,
increasing the ROI of advertising campaigns. This, in turn, attracts more
external publishers who also have their own content (such as game apps), ad
space and first-party data and want to monetize it through our ad software
platform. The increasing demand from advertisers for targeted user
acquisition on our platform thereby leads to a higher price per ad space,
so that publishers can achieve a higher revenue per ad space on our
platform and are therefore happy to work with us.

The resulting scale of our ad software platform leads to even more
efficient user acquisition for our own games, which in turn increases the
user base and first-party data of our own games portfolio. M&A plays a very
important role here. This is because M&A as well as new product innovation
can further accelerate the flywheel. For example, if we buy a mobile games
company, it increases the number of users and access to first-party data,
which in turn attracts more advertisers, which in turn attracts more
publishers. Also, by developing new innovative products, as we did for
example in the case of ATOM or Moments.AI, we have the chance to attract
additional advertisers and publishers.

GBC AG: The model makes sense and seems to offer some significant
advantages. Why don't other companies do the same?

Paul Echt: We are currently seeing more and more companies focusing on this
strategy. With AppLovin and IronSource, there are two companies that went
public in the US last year and are following a similar model. Zynga and
Skillz, two gaming companies, also started buying ad software companies
last year. And as many have noticed, Microsoft recently bought Activision
Blizzard. What not many people know, however, is that shortly before they
also bought Xandr, also a programmatic advertising platform, from which one
can conclude that Microsoft also wants to exploit the possibilities of this
model for itself.

But the most important thing is that it sounds easier than it is. This
model cannot be built up within one to two years. In principle, we already
started in 2012, back then as a pure games company. Here, we have learned
to live and love the craft and art of a games publisher over many years.
Back in 2016, we took our first steps into the media sector to optimize
user acquisition for our own games. From then on, we studied both sides and
learned how synergistic they are and how to combine them. Then, from 2019
onwards, we put a strong focus on programmatic advertising and increasingly
linked this area to our games. Through this development, which took many
years, in which we tried out a lot and in which some projects also failed
at times, a strong symbiosis of media and games has emerged. So, it's not
something you can build overnight.

GBC AG: In the past year 2021, there were IDFA (Identifier for Advertisers)
changes within your industry, which also affected both of MGI's business
areas. How did these IDFA-based disruptive market changes affect your
company? Was your group even able to benefit from the changes in

Paul Echt: To start with, yes, we were able to benefit substantially from
the changes in the market. That Apple was planning these changes had been
known several years in advance, even if many market participants didn't
really believe that Apple would actually implement them. Google, by the
way, has announced similar changes for Android as well. Accordingly, we had
already thought about how to react to these market changes years ago. And a
very important sub-component for a world without 'Identifier for
Advertisers' was a direct connection to publishers who own advertising
space and customer data. The latter are extremely valuable in a world
without IDFA. Because through a direct technical integration into the apps
of publishers, we receive just as much customer data as from our own games
and can pass on this data anonymously to the advertisers on our platform.
This allows them to target their marketing campaigns even in a world
without cookies and IDFA. Accordingly, the focus in recent years has been
on establishing as many direct connections to publishers as possible via
M&A. More than 5,000 publishers are now connected to our advertising
platform, giving us access to around 1.7 billion end devices and even more
customer data.

In parallel to the direct integration in Publisher, we started early to
develop solutions like ATOM. ATOM itself is a technical solution that
enables targeting of users based on anonymized behavioral and contextual
data, without using IDFA and without pulling data from the user's mobile
phone. In parallel, we have started to develop technical solutions in the
area of AI-driven contextual advertising. In general, we have the ambition
to offer services that are privacy by design and fully compliant with data-
protection and convince through high transparency. Our success is also
reflected in the fact that our mobile products and traffic quality are
regularly ranked first by Pixalate.

Accordingly, this approach is paying off and we see ourselves in a good
position to benefit from further market changes from Apple and Google as
well as further tightening in the area of data protection.

GBC AG: You just mentioned AI-driven contextual advertising. Here you
recently launched Moments.AI(TM), the first real-time contextual targeting
solution. How does Moments.AI(TM) work and what advantages does the
solution offer MGI?

Paul Echt: Moments.AI(TM) is based on parts of the software code from
Beemray that we acquired in an acquisition in 2021 and which we have now
integrated into MGI's advertising software platform. This is a good example
of our 'Buy. Integrate. Build & Improve.' strategy.

Moments.AI(TM) is one of the first data management platform that can
deliver high-quality, real-time contextual data to its customers for
targeting without the need for identifiers or cookies. With Moments.AI(TM),
brands can access contextual segments created in milliseconds based on
visual content analysis and keywords.

Contextual targeting has been around for a long time but, in the past, the
problem was that the quality of the data was not good enough to effectively
reach its target audience. We can now offer our clients an effective
solution with Moments.AI(TM) and expect it to contribute to our organic
growth and further accelerate our flywheel also because of the changes in
the industry due to the elimination of identifiers and cookies.

GBC AG: At the beginning of February, MGI announced the relocation of its
headquarters to Sweden and the strengthening of its current corporate
governance structures. What were the reasons for this strategic move and
what are the potential benefits?

Paul Echt: Malta does not have a good image. It is listed on the grey list
of the Financial Action Task Force (FATF), which, among other things, sets
standards to combat money laundering and monitors compliance with them.
This has a negative impact on us for two reasons. First, there are groups
of investors who are not allowed to invest in Maltese companies, even if
they define the company itself as an investment case. Secondly, investors
associate an increased risk with Malta, which increases the risk premium of
our shares.

For this reason, and because we are not operationally tied to Malta, we
have decided to move our headquarters. By moving to Sweden, we are also
reducing administrative complexity. Whereas, from a capital market
perspective, we are currently active in three jurisdictions, after the
move, there will only be two. All in all, we expect the successful
relocation to have a very positive impact on our company and our operating
business in the medium and long term and, therefore, hope that our
shareholders will follow this proposal accordingly.

MGI has grown at an average rate of 77% over the last three years. To
accommodate the strong growth in organizational terms, we have decided to
optimize our governance processes in the coming months. We are doing this
not only to manage the growth we have experienced so far, but also to lay
the groundwork to be able to manage and promote further growth. Among other
things, we plan to introduce various committees, such as a nomination
committee, an audit committee and a remuneration committee. This will bring
us even closer to the Swedish and also the internationally recognized
standard for large companies. In addition, we are currently working
together with KPMG to optimize our internal control system, which will
fundamentally enable MGI to meet increasing regulatory requirements with
high growth in the future.

Last year we also published our sustainability report for the first time.
Here, too, you can see that we are striving to become even more transparent
and thus to make the exchange with our shareholders even more efficient.

GBC AG: Where do you see MGI in the next three to five years, especially in
terms of business volume, business regions and service offer? What is your
overall vision for your company?

Paul Echt: We have a clear idea of where we want to be in 2025 and have
also defined this in our Vision 2025. We want to be one of the world's most
desired employers to work for, characterized by diversity and creating a
working atmosphere that is non-political, professional, dynamic and
innovative. We want to become one of the world's top five advertising
software platforms by convincing people with transparent and innovative
open source products that we offer across all formats. In doing so, we rely
on respectful and transparent dealings with all our partners. Last but not
least, we see the opportunity to build a white-label SaaS advertising
software platform that publishers can use to monetize advertising space and
advertisers can use to acquire users on a fully self-serve basis.

GBC: Thank you very much for the interview.

Die vollständige Analyse können Sie hier downloaden:

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Date (time) of completion: 24/03/2022 (8:26 pm)
Date (time) of first distribution: 24/03/2022 (9:30 am)

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