Efficient user acquisition allows G5 to continue growing. Focusing its marketing on groups that can offer a high return of investment will lead to continued revenue growth while keeping EBIT margin of around 9-10 %. If G5 manages to continue its growth in Asian market it can benefot from 17% YoY forcasted growth of that industry.
Focus on females over 35 means more loyal users. G5 focuses on females older 35, which is a group that tends to be more loyal to the games that they play compared to the typical younger players. This also allows G5 to convert users between its games, keep them for a longer time and strengthen revenue per user.
G5 operates on a competitive market. As the barriers of entry to this market are minimal, G5 needs to stand out among its competitors. Although the very specific and loyal target market of G5 helps to keep the long tail of revenue, a large portion of revenue is generated from some of its older titles. As they mature, G5 needs to rely more on its new game for continued revenue growth.
A relative valuation indicates an upside of 37 % in the base case 2020E. For the base case it is estimated that none of G5’s newer games will reach the same success as the most succesful G5 games. This is estimated to result in a lower revenue growth of 20 % and respectively 12 % in 2019 and 2020. An EBIT margin of 9 % in 2020 results in an EBIT result of 181 MSEK. A target multiple of 11x EV/EBIT indicates an upside of 37 %. However, if one of G5’s newer games reaches similar revenues as Hidden City and The Secret Society, a potentially higher upside is motivated.
Analysts: Zahra Alavi and Andreas Magnusson