Negative growth trend persists, but could improve from Q4'24e
Potential for continued gross margin improvements
Trading at 5x EV/EBIT and 4x EV/FCF on 2024e, 8% div yield
Focus on protecting profitability
As expected, Q2 was reminiscent of the performance G5 delivered in Q1, with negative organic growth in the low double-digit range and stable costs. Sales were a tad softer, however (-1% vs. ABGSCe, -2% vs. FactSet consensus), which led to a miss on EBIT with costs in line with expectations. User acquisition costs remained at low levels (SEK 50m vs ABGSCe SEK 50m, or 17% of sales) at the low end of guidance (17-22% of sales), reflecting the limited opportunities to deploy growth capital on the existing game portfolio. As such, profitability remained relatively in line with last year, with an adj. EBIT margin of 8.8% (9.5%) despite 13% lower sales. This was in part supported by a higher gross margin that continued to strengthen on strong growth for G5 Store, where commission costs are significantly lower. G5 Store now comprises 15% of total sales (9%), and management expects the positive trend to continue. For reference, we see peers like Playtika at +25% of sales from DTC channels, which could be achievable for G5 as well. There should therefore be more runway for the gross margin to improve further. Management also highlighted other advantages with the G5 Store, such as better opportunities to cross-promote between games and create a more tailored customer experience compared to third-party stores.