MGI Q2 and CMD on Thursday: We expect moderate revenue growth with stable operating profit

MGI will publish its Q2 results on Thursday morning (August 31). For Q2, we expect mid-single-digit revenue growth in line with the full-year guidance. We expect operating profits to be broadly in line with the comparable quarter. After publishing their Q2 results, MGI will hold a Capital Markets Day (“CMD”) starting at 10:00 CEST. During the CMD, the company will present its Q2 results and provide an update on its strategy and a deeper insight into current developments within the programmatic advertising business and MGI’s positioning.

We estimate mid-single-digit revenue growth and stable operating profit

We expect Q2 revenues to come in at 81.4 MEUR (Q2’22: 78.1 MEUR), a 4% increase year-on-year. We assume that growth will be primarily organic, with some inorganic growth from the AxesInMotion and Dataseat acquisitions. The 4% growth rate aligns with the company’s guidance for 2023. The lower growth rate compared to previous years is partly due to softer ad demand and partly due to the closure of some of the non-core games late last year. We expect adjusted EBIT to be slightly higher than in the comparable quarter at 16.7 MEUR (Q2’22: 16.4 MEUR), which corresponds to a margin of 20.5% (Q2’22: 21%). Going further down the income statement, we expect adjusted EPS to decrease to 0.03 EUR (Q2’22: 0.05). The lower EPS is mainly due to higher financial expenses than in the comparable quarter.

We expect guidance to be reiterated and remain vigilant for any signs of recovery in ad demand

We expect MGI to reiterate the guidance given in conjunction with its Q1 report. MGI’s guidance for 2023 is revenue of 335-345 MEUR (2022: 324 MEUR) and an adjusted EBITDA of 95-105 MEUR (2022: 93 MEUR). Our estimates for the current year are in line with the guidance. MGI’s guidance translates to 3-7% revenue growth compared to 2022. This growth rate is lower than in previous years and indicates the muted ad demand experienced during the first half of 2023. There has been chatter about a recovery in demand during the second half of 2023, and we will be on the lookout for any signs indicating this. The prevailing opinion is that 2023 will be a year of lower growth for the programmatic ad market but that the overall trend remains strong, and that growth will pick back up in the medium- and long term. We tend to agree with this view; however, we also remain vigilant for any signs that the crackdown on using personal identifiers for ad targeting (removal of IDFA & third-party cookies) has or will lead to a fundamental downward shift in the industry’s viability.

During the quarter, MGI was reportedly involved in negotiations to acquire MediaMath, an American DSP. The talks ultimately did not lead anywhere, with MediaMath filing for chapter 11 instead. The reporting (if true) is of note for two reasons. Firstly, it shows that MGI has not entirely ruled out further acquisitions, and secondly, it confirms MGI’s desire to expand its DSP operations (9% of Q1’23 revenues). Any new acquisitions financed with debt or cash would naturally impact MGI’s net debt position. At the end of Q1’23, MGI had 130 MEUR in cash and a net debt-to-adjusted EBITDA ratio of 3.0x, which is at the top of the company’s target range of 2-3x.