CEO’s Review (H1 2020 28 Aug 2020)
The first half of 2020 was strong for Next Games. Our strategy to develop licensed games is working. Our business turned profitable due to the operational profitability of The Walking Dead games, and a cost level that remained at our target level.
We were able to significantly improve the company’s profitability and our Publishing Operations achieved a significant milestone by reaching an EBITDA level of 24 per cent (12%) amounting to EUR 3.4 (2.3) million. This achievement is already a strong indication of the relative profitability the company is capable of, and we believe that there are still additional opportunities to improve profitability in the longer term.
Continuing our significant investments into product development is still reflected in the company’s profitability profile: product development costs amounted to EUR 2.6. million (18% of revenue) during the reporting period, as many as 52 per cent of employees worked on new products. Thus, we can be extremely proud of the company’s EBITDA of EUR 0.3 million. This increased profitability was also reflected in cash flow from operating activities, which turned positive and was EUR 1.3 (-0.7) million. We believe that our investment in product development is worthwhile in the long run. Although our operating result (EBIT) was still negative due to the effect of depreciations relating to previous investments made into technology and our common infrastructure, it also improved significantly by EUR 1.9 million to EUR -1.6 (-3.5) million.
Revenue during the first half of the year, EUR 14.4 million, was in line with our expectations. We aim to increase revenues through our new products and the company is now in an excellent position to stack revenue whilst continuing to invest heavily in new product development. Development of the Strange Things mobile game has proceeded as planned during the first half of 2020. The game’s concept has been tested, and with the addition of the latest features preliminary results are promising. We are planning to start bringing the game to the market and scaling in stages starting Q4 2020.
A key reason for the turnaround in profitability is our licensed games strategy: the appeal of well-known brands brings a strong organic uplift of players to our games. This free portion of players lowers our total user acquisition costs. Our advanced analytics enables us to continuously evaluate the organic user flow and to optimize the total cost of game-specific user acquisition. This is reflected in the improved profitability of our live games. Continued focus on development has resulted in the ARPDAU (Average per Daily Active User) of our “The Walking Dead” games to rise steadily from last year’s first quarter average €0.24 to €0.33.
I’m extremely proud of our achievements during the first half of this year. I want to thank all the Next Games employees for their incredible work during the first months of 2020, despite the challenges presented by the COVID-19-pandemic. Even during exceptional circumstances, we were able to continue to operate our business almost normally and the development of our games proceeded as planned.
The achievements of the first half, combined with a well-functioning licensed game strategy and a strong product development pipeline, give us a good position to further develop our business during the second half of this year, and achieve our outlook for the full year.