Rovio Entertainment Corp.: Games grew 5.2% year-on-year in Q3, profit margin lower due to increased user acquisition to drive growth of new games
Rovio Entertainment Corporation Stock Exchange Release October 30, 2019 at 8.30 a.m. EET
Games grew 5.2% year-on-year in Q3, profit margin lower due to increased user acquisition to drive growth of new games
July-September 2019 highlights
- Rovio’s revenue grew 5.4% year-on-year to EUR 74.8 million (71.0)
- Games revenue in Q3 grew by 5.2% year-on-year to EUR 66.4 million (63.1). In comparable currencies, the revenue increased approximately by 3%. The Games gross bookings were EUR 65.1 million (63.2) or 3.0% growth year-on-year and in comparable currencies the gross bookings were at similar level.
- Angry Birds Dream Blast, launched on 24th January 2019, had gross bookings of EUR 17.8 million and grew from Q2 gross bookings of EUR 14.0 million
- Rovio launched a new IP game, Sugar Blast on 5th September
- User acquisition investments were EUR 27.1 million (17.8), or 40.8% of the Games segment’s revenue (28.2%)
- Brand Licensing revenue was EUR 8.4 million (7.9) and grew 6.2% year-on-year
- The sequel to the Angry Birds Movie was released in August 2019
- Group adjusted operating profit was EUR 5.4 million (10.4) and adjusted operating profit margin 7.2% (14.6%)
- Group adjusted operating profit excluding Hatch Entertainment was EUR 8.6 million (12.0) and adjusted operating profit margin 11.5% (16.9%)
- Operating cash flow was EUR -0.7 million (11.1)
- Earnings per share was EUR 0.06 (0.10)
January-September 2019 highlights
- Rovio’s revenue was EUR 217.5 million (208.5) or 4.3% growth year-on-year
- Angry Birds Dream Blast, launched on 24th January 2019, accumulated gross bookings of EUR 38.7 million during the review period and is trending close to EUR 60 million for the full year and in September, reached a yearly run-rate of nearly EUR 80 million.
- Games revenue grew 7.0% to EUR 198.1 million (185.2). In comparable currencies, the revenue growth was approximately 4%. The Games gross bookings were EUR 196.1 million (186.6) or 5.1% growth year-on-year and in comparable currencies the growth was approximately 1%.
- User acquisition investments were EUR 72.2 million (55.3), or 36.4% of the Games segment’s revenue (29.9%)
- Brand Licensing revenue was EUR 19.4 million (23.3) or 16.8% lower year-on-year
- Group adjusted operating profit was EUR 18.2 million (25.9) and adjusted operating profit margin 8.4% (12.4%)
- Group adjusted operating profit excluding Hatch Entertainment was EUR 26.0 million (30.3) and adjusted operating profit margin 11.9% (14.5%)
- Operating cash flow was EUR 7.4 million (23.4)
- Earnings per share was EUR 0.17 (0.25)
|Adjusted EBITDA margin, %*||12.8%||21.1%||-||13.7%||18.7%||-||16.9%|
|Operating profit margin, %*||7.2%||14.6%||-||8.4%||12.3%||-||11.2%|
|Adjusted operating profit*||5.4||10.4||-48.1%||18.2||25.9||-30.0%||31.2|
|Adjusted operating profit margin, %*||7.2%||14.6%||-||8.4%||12.4%||-||11.1%|
|Profit before tax||6.1||10.2||-40.8%||18.4||26.0||-29.3%||32.2|
|Return on equity (ROE), %||14.9%||25.4%||-||14.9%||25.4%||-||21.5%|
|Net gearing ratio, %*||-64.9%||-67.0%||-||-64.9%||-67.0%||-||-75.3%|
|Equity ratio, %*||79.8%||84.6%||-||79.8%||84.6%||-||83.7%|
|Earnings per share, EUR||0.06||0.10||-36.8%||0.17||0.25||-31.5%||0.31|
|Earnings per share, diluted EUR||0.06||0.10||-36.2%||0.17||0.25||-31.2%||0.31|
|Net cash flows from operating activities*||-0.7||11.1||-106.1%||7.4||23.4||-68.5%||42.6|
|Employees (average for the period)||463||387||19.6%||444||384||15.6%||388|
*Not fully comparable due to IFRS 16 adoption in 2019. See Note 1 for details.
otherwise stated, the comparison figures in brackets refer to the corresponding period in the previous year. Calculations and definitions are presented in the Performance Measures section.
The changes in comparable currencies have been calculated by translating the reporting period figures with the average USD/EUR exchange rates of the comparison period for the US dollar dominated in-app-purchases in United States and global ad network sales.
Kati Levoranta, CEO:
Rovio’s revenue in the third quarter of 2019 was EUR 74.8 (71.0) million and grew 5.4% year-on-year. Rovio’s Games unit revenue was EUR 66.4 million (63.1) and grew 5.2% year-on-year. Angry Birds Dream Blast, which was released in January this year, continued to grow and reached EUR 17.8 million gross bookings. The gross bookings of Angry Birds Dream Blast are thus trending close to EUR 60 million for the full year of 2019 and in September the yearly run-rate of gross bookings reached nearly EUR 80 million. This shows our ability to launch and scale up a game quickly when the opportunity arises, i.e. when the game KPIs are good and the user acquisition performance is according to our targets.
The gross bookings of Angry Birds 2, Rovio’s largest game, was EUR 25.0 million as the month of July was quite soft for the game although the Angry Birds Movie 2 release boosted the game during the August and September. We continue to work on improving the games retention and monetization to enable us to increase user acquisition investments and grow the game.
In September, we launched a new game, Sugar Blast, that is based on the Angry Birds Dream Blast core gameplay, but with a new IP. The game was launched late in the quarter and thus did not significantly contribute to the quarter’s financials. We are ramping up the game gradually through user acquisition as we gain more data.
The user acquisition investments in the reporting period grew to EUR 27.1 million (17.8). Most of the investments were directed to Angry Birds Dream Blast to drive its growth. During the quarter the largest user acquisition investments were made in August, around the release of the Angry Birds Movie 2, which gave us a good opportunity to boost our key games.
The adjusted operating profit of Rovio in the reporting period was EUR 5.4 (10.4) million and the adjusted operating profit margin 7.2% (14.6%). The lower operating margin in this quarter was mostly due to increased investments in user acquisition.
Our game portfolio continues its transition, with new games clearly playing an increasing role and replacing older games in the portfolio. We’ve launched two new games in 2019, as we had planned, and currently we have three games in soft launch out of which one is an Angry Birds game and two are with new IP. Our newest game which was soft launched in October is called Small Town Murders, a narrative puzzle game with a new IP. We’ve stated that our aim is to increase our top line growth rate, and thus we aim to keep user acquisition investments at a high level for the rest of 2019.
The Brand Licensing unit’s revenue in the third quarter was EUR 8.4 million which was a bit higher than last year (7.9). The growth was mainly due to higher consumer products revenues boosted by The Angry Birds Movie 2, which released in August. The sequel opened in a very competitive landscape and regardless of great critics’ reviews and high audience score, the theatrical box office traction has been much softer than what we had hoped for. As communicated earlier in connection with the 1H/2019 financial report we somewhat lowered our revenue expectations for the Brand Licensing unit due to the highly competitive landscape for consumer products. Consequently, we have started employee cooperation negotiations in the Brand Licensing unit and are planning to restructure the unit to seek efficiencies and improve profitability.
In the third quarter, Rovio continued exploring alternative financial structures and partnerships to accelerate the growth of Hatch Entertainment, Rovio's 80% owned subsidiary, which is developing a cloud-based game streaming service for mobile and smart TVs.
Outlook for 2019 (updated September 12, 2019 in a separate release)
In 2019, Rovio expects group revenues to grow to EUR 295 – 310 million (2018: EUR 281 million) and adjusted operating profit margin to be between 5 and 8 per cent (2018: 11.1 per cent).
Basis for outlook
The lower adjusted EBIT margin boundary is associated with the upper revenue boundary, which is a result of higher user acquisition investments, and vice versa.
In 2019, Rovio Games business continues developing its live game portfolio according to the Games as a Service strategy, profitable user acquisition and development of new games. Rovio has launched two new games during the first three quarters of 2019: Angry Birds Dream Blast was launched on January 24th and Sugar Blast on September 5th,
The user acquisition investments are expected to be 35-40 percent of Games’ revenues for the full year with an average payback time of 12 months. The amount of user acquisition may vary depending on the development of the games’ monetization and the level of competition in the market.
The Brand Licensing segment revenues are expected to be at a similar or slightly higher level in 2019 with focus on the second half of the year after the release of the Angry Birds Movie sequel.
On group level the largest revenue growth is expected during the second half of 2019. The profit margin excluding Hatch Entertainment is expected to be between 8 and 11 per cent for the full year.
Audiocast and conference call:
Rovio will host an English language audiocast and conference call on the third quarter 2019 results, including a Q&A session for analysts, media and institutional investors at 14:00-15:00 EEST on October 30, 2019. The audiocast can be viewed live at: http://www.rovio.com/investors-investor-calendar, and later on the same day as a recording.
Conference call details:
FI: +358 981 710 310
SE: +46 856 642 651
UK: +44 333 300 08 04
US: +1 855 857 06 86
ROVIO ENTERTAINMENT CORPORATION
Kati Levoranta, CEO, tel. +358 207 888 300
René Lindell, CFO, tel. +358 207 888 300
Distribution: Nasdaq Helsinki, key media, www.rovio.com
Rovio in brief
Rovio Entertainment Corporation is a global, games-first entertainment company that creates, develops and publishes mobile games, which have been downloaded 4.5 billion times so far. Rovio is best known for the global Angry Birds brand, which started as a popular mobile game in 2009, and has since evolved from games to various entertainment and consumer products in brand licensing. Today, Rovio offers multiple mobile games, animations and has produced The Angry Birds Movie, which opened number one in theatres in 50 countries. Its sequel, The Angry Birds Movie 2, released worldwide in August 2019. Rovio is headquartered in Finland and the company's shares are listed on the main list of NASDAQ Helsinki stock exchange with the trading code ROVIO. (www.rovio.com )