G5 Entertainment AB (Ticker: G5EN)

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    G5 Entertainment AB

    Developer and publisher of Free-to-play mobile games

    Disclaimer: The writer of this analysis owns shares in the company. This analysis is not a financial advice. Shares have been accumulated between 390 – 415 SEK


    G5 Entertainment («G5EN») is a developer and publisher of Free-to-play (“F2P”) mobile games with a market cap of 3.500 MSEK (425 MUSD), strong return on capital, improving margins and a 5-year trailing EBIT CAGR of 28% operating in the fastest growing segment of the overall gaming market. In 2020 the share price appreciated almost 300%, but it is still trading on a 70% discount on EV/Sales and 30% on EV/EBIT to closest Nordic peers. G5 has shown good capital allocation in 2020 with buybacks made at low valuation, increased focus on in-house developed games as well as implementing ads in their games with a high return on incremental invested capital.

    Business & Industry overview

    Mobile gaming is the fastest growing gaming segment and is expected to grow between 10% -14% CAGR in the 5 coming years. Mobile gaming revenues accounts for 46% of total gaming revenues and the majority stems from smartphone games. Increasing 5G connections globally will continue to support the projected growth of the industry with lower latency and higher experienced quality of the games. Market competition within mobile game development is very strong and with large players as Tencent, Activision Blizzard and Zynga dominating the space.


    1. Technological progress (handling of data and increased use of smart phones).

    2. Global trends (rising middle-class à smart phones)

    3. Improving the gaming experience (graphics and quality of games)

    4. User base is increasing

    G5 is developing and publishing F2P-games targeting women above 35 years old and are now focusing on development of in-house games which will continue to transform their revenue base (revenues from own games has increased from 30% in 2018 to 60% in Q3 2020). In-house development of mobile games has higher margins as no royalties are paid to developers. This shift in focus has put a short-term pressure on margins due to increased fixed costs (primarily expansion of development team), but G5 is now benefitting from this shift and are seeing improved margins.

    G5’s gaming portfolio consists of 20 F2P-games (2019), released 8 games in 2020 and the guiding for 2021 is 5-6 games. Distribution is achieved digitally through the various app stores of Apple, Google, Amazon and Windows which normally takes a 30% cut of in-app purchases. F2P-games can be continuously updated through the game’s life cycle. This in turn increases the ability to retain players for a longer time and significantly increases earnings capacity. The mobile gaming market is highly competitive, but the company does not compete with war games, strategy games or RPG as G5’s focus is on adventure and / or puzzle games.

    G5’s four genres:

    1. Hidden Object (primary genre)

    2. Match-3 (fastest growing genre)

    3. Solitaire / Match-2 (evergreen genre)

    4. Word games (new genre)



    ·         Increased competition in the mobile gaming market

    ·         Lower than anticipated market growth

    ·         Development of games (delays or poor market response)

    ·         Changes made in distribution channels à “Identification for Advertisers” (“IDFA”)

    ·         Political risks due to the multinational nature of G5’s operations and tax risks

    ·         Loss of key personell


    The business model has resulted in revenue CAGR of 21% since 2015, high and increasing gross margins and a earnings CAGR of 25% the past 5 years. This has not gone unnoticed and the share price appreciated almost 300% in 2020 and are among the top performers the past decade in Sweden.

    High market growth and higher monetization of existing games, reduced payment of royalties to external developers as a percentage of total revenues and leveraging fixed overheads as scale-up of workforce is complete will drive gross and EBIT margins upwards the coming three years. Based on forecast the company is trading at EV/EBIT of 12 in 2023 compared to a historical average of 20.

    G5 has a solid balance sheet with a equity ratio of 70%, a strong cash-position, short-term loan facility was repaid in the second quarter of 2020 other long-term debt and other short term debt is solely related to IFRS16 accounting of lease contracts.


    The market cap is approximately 3.500 MSEK and is the smallest compared to other Nordic gaming companies listed as closest peers. G5 is trading at a large discount on an EV/Sales and EV/EBIT basis and has return on capital in line with the peer group. Some of the discount is justified with historically lower sales and earnings growth, but much of the sales and earnings growth in the peer group stems from acquisitions. Another justification for lower relative multiples is lower margins and higher user acquisition costs. With the transformation of the revenue base outlined in the forecast this margin gap is expected to decrease going forward.


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    Markus Enge


    Great overview!

    • Do they give any indication of how significant their largest game is?
    • What happened in 2019 to the figures?

    Attracting talent is quite hard in the industry (at least for PC game developers), an interesting angle to have offices in Russia and Ukraine, seems there are easier to get a hold of talent there at competitive prices.

    Have you looked at Rovio? Figures for that also seemed quite good.




    • Hidden City still top-grosser according to Sensortower: G5 – Sensortower
    • Jewels of Rome (wholly-owned game) was launced in 2019 and at year-end accounted for 15% of revenues (2nd largest revenue-generator). Game portfolio is expanding and the revenue base will be further diversified.

    • In 2018 the largest game in the Group started to mature which continued in 2019, resulting in a revenue-drop. They also invested 42% on User Acquisitions in Q3 2019 to drive revenue growth in the coming periods and explore how to optimize their marketing strategy.
    • Not looked into Rovio, felt they have had to much focus on the Angry Birds brand, but may be worth a deeper look into the company.




    Q4 2020 – earnings release

    Q4 results on 11 February 2021 – share price reaction: + 24.02%.

    The story is playing out earlier than expected, but even with today’s share price reaction the company is cheaper than yesterday

    In this memo I’ll highlight my key takeaways and updated forecast for 2021 – 2023.


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    SEB initating coverage of $G5EN (commissioned by G5EN)


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