MGI Q3 on Thursday: We expect declining revenues due to softness in ad demand

MGI will publish its Q3 results on Thursday morning. During the quarter, MGI managed to increase its market share in the key segment of mobile in-app advertising. However, the softness in ad demand has continued. Consequently, we expect the pricing of ads to have remained depressed, leading to declining revenues in line with the company’s updated full-year guidance. We expect operating profits for Q3 to be somewhat higher than in the comparable quarter due to the strong cost control demonstrated by the company during H1’23.

We estimate a double-digit revenue decline and slight increase in operating profit

We expect Q3 revenues to come in at 77.6 MEUR (Q3’22: 87.6 MEUR), a 12% decrease year-on-year. The estimate of declining revenues aligns with the company’s updated guidance for 2023. The company expects lower revenues due to softer ad demand and the closure of some games late last year. We expect the significantly smaller DSP segment to grow slightly while revenues from the larger SSP segment will decline by a low double-digit figure.

We expect adjusted EBIT to be slightly higher than in the comparable quarter at 20.2 MEUR (Q3’22: 18.5 MEUR), which corresponds to a margin of 26% (Q3’22: 21%). The improved operating profitability aligns with H1’23 results and MGI’s guidance for 2023. Going further down the income statement, we project a pretax profit of 5.4 MEUR. The pretax profit is burdened by interest costs of about 10 MEUR associated with MGI’s interest-bearing debt of about 415 MEUR. Meanwhile we estimate that adjusted EPS will increase to 0.06 EUR (Q3’22: 0.05).

Our full-year estimates align with the guidance while we remain alert for any signs of further deterioration in the ad market

We expect MGI to reiterate the updated guidance given in conjunction with its Q2 report. MGI now expects its 2023 results to align with 2022, normalized for FX and game divestments. The updated guidance now guides for revenues of EUR 303 million (prev. 335-345 MEUR) and an adjusted EBITDA of EUR 93 million (prev. 95-105 MEUR). Our estimates for the current year align with the guidance. MGI’s updated guidance reflects a continuation of the muted ad demand experienced during the first half of 2023. There was hope that the ad market would recover during the second half of 2023, but this has not happened. Expectations of a recovery have now been pushed into 2024 and are reflected in our estimates. The prevailing opinion is that we are now in a lower growth period 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. We will also keep a keen eye on the development of the company’s cash flow and net debt.