MGI Q4 on Thursday: Ad spending progress and 2024 outlook in focus

MGI will publish its Q4 results on Thursday morning. We expect revenues and operating profit to align with the company’s guidance. Any guidance and/or comments regarding 2024 will be of particular interest in the report. After a year in which the entire industry was weighed down by weakness in ad pricing, we cautiously expect growth to return in 2024 as demand begins to recover.

We expect double-digit revenue decline and flat operating margin for the quarter

We expect Q4 revenues of 79.8 MEUR (Q4’22: 92.9 MEUR), a 14% decrease year-on-year. Our expectation of lower revenues is due to softer ad demand and the closure of some non-core games in Q4’22. We expect revenues from both the DSP and SSP segment to decline. MGI’s guidance for 2023 is for results to be in line with 2022, normalized for FX and game divestments. In terms of figures, the company expects full-year revenues of 303 MEUR.

We expect adjusted EBIT to be lower than in the comparable quarter at 24.2 MEUR (Q4’22: 28.1 MEUR). The last quarter of the year is traditionally the strongest as advertisers increase their spending in the run-up to Christmas. Combined with the cost savings program initiated earlier in the year and the seasonal effect, we expect the margin to improve quarter-on-quarter and reach 30%. Our adjusted EBITDA estimate is 28.9 MEUR, which is in line with MGI's full year 2023 guidance of 93 MEUR. Looking further down the income statement, we expect a pre-tax profit of 4.0 MEUR. The pre-tax profit is burdened by interest costs of about 12.8 MEUR related to MGI's interest-bearing debt of about 415 MEUR. Meanwhile, we estimate that adjusted EPS will increase to 0.07 EUR (Q4'22: 0.05).

We expect growth to return during the second half of 2024

After a down year in 2023, the focus is now on how/if the ad market will rebound in 2024. This year brings back major cyclical events (U.S. presidential election, Paris Olympics, European Football Championship) that should help overall ad demand. eMarketer's forecast for global digital ad spending growth in 2024 is 13%. At the same time, the ad market is undergoing a significant shift as Google begins to remove third-party cookies for select users of the Google Chrome browser. The industry is trying to assess the impact Google's actions will have on the overall programmatic advertising market. MGI's bread and butter is mobile in-app advertising, which is not significantly impacted by the removal of third-party cookies on Chrome. However, these actions could have a market-wide impact on things like overall ad pricing. We expect the advertising market to rebound in the second half of 2024 and expect full-year revenue to grow by 3% to 312 MEUR. We will also keep a close eye on the development of the company's cash flow and net debt in the fourth quarter.