G5 Entertainment: Below cons, but +3% in USD strong for Q2’21 - ABG

Q2 EBIT SEK 43m, -30.4% vs. ABG, -20.0% vs. cons
Prel. cons. ‘21e EBIT estimates down 5-7%
Platform diversification positive vs. peers in ‘21e

G5 Entertainment reported its Q2’21 earnings today, which was below consensus profitability, with an EBIT of SEK 43m, -30.4% vs. ABGSCe and -20.0% vs. consensus, corresponding to an EBIT margin of 12.8%. Net sales were SEK 337m, -5.6% vs. ABGSCe and -4.8% vs. consensus, for a total y-o-y growth of -10.4%, but a positive growth of ~3% in USD terms. We consider this a strong performance in the quarter facing the toughest comparables from the COVID-19 boosted Q2’20, and when peers are showing negative organic growth. This speaks to the success of G5’s internally developed games, which grew 23% y-o-y and +5% q-o-q in USD terms. Further, G5’s new generation of games, which have been released over the last 2 years, grew by 74% y-o-y in USD terms. The growth in G5’s internally developed games further strengthens the gross margin.

We could see consensus making negative EBIT estimate revisions for ‘21e of 5-7% on the back of the report itself.

G5’s share has been somewhat weak this year, down ~9%, which is still a lot stronger than the gaming sector as a whole, but the decline has likely been a result of the shifting investor sentiment towards gaming as a whole rather than G5’s financial performance. In fact, we find the fact that G5 generates a greater amount of revenues from platforms other than iOS as a strength in a year where iOS heavy operators are suffering from the implementation of IDFA. This appears to have allowed G5 to find good opportunities for UA in Q2’21 (UA spending up ~5pp from Q1’21), when peers appear to have been struggling. Combining this with G5 growing ~3% y-o-y in USD terms in Q2’21 (when peers are showing negative organic growth), MSFT lowering its store fee from 30% to 12% starting Q3’21e and we find a favorable outlook versus peers.

Länk till analysen i sin helhet: https://www.introduce.se/foretag/g5-entertainment/Equity-research/2021/8/g5-entertainment---below-cons-but-3-in-usd-strong-for-q221/