Flexion validates return to growth with all-time highs for quarterly revenue and adjusted EBITDA[‡] as it hits GBP 24.3m and GBP 2.1m respectively in Q4. Revenue grows 64% compared to Q3.
* Comparison figures for the year-earlier period in brackets
‡ The Group defines adjusted EBITDA as earnings before interest, tax, depreciation, amortisation, finance costs, impairment losses, foreign exchange gains/losses, corporate acquisitions costs and other extraordinary costs (Insolvency related provisions/write-backs & costs).
Comments from the CEO
The fourth quarter signalled a strong and positive new trend, recording an all-time high of GBP 24.3m in quarterly revenue and year-on-year growth of 12% in GBP. As of today, we have GBP 14.3m (11[th] March 2024) in cash, a strong positive cash flow, zero debt and we are continuing to grow rapidly in both of our business areas. This is a great achievement, and I was pleased to see us bounce back like this in Q4. I am very proud of how the teams performed during this important period and we are now looking forward to an exciting 2024.
Our new titles and the top segment of the portfolio performed well during the quarter, which resulted in strong quarter-on-quarter growth of 64%. In December, we tripled the amount of Monthly Active Users (MAU) to 4.5m compared with the preceding year, which demonstrates the momentum in the portfolio and channels. Audiencly's "7vs Wild" project also delivered on our expectations and the good news is that we have secured the fourth season of this blockbuster show. "7vsWild" is the biggest YouTube show in the German-speaking markets with approximately 100m views per season. It is a survival show featuring some of the most well-known influencers competing to win the competition. It has significantly raised Audiencly's profile with advertisers and influencers. Extending this contract will allow us to start selling sponsorship already now, much earlier than last year, and as such we expect our revenue from next season to exceed season 3, which just ended.
Looking back at 2023, one of the defining moments was when we launched Monopoly Go - the top-grossing mobile game in the world - in our channels. Since then, our alternative distribution service has been gaining considerable traction with top developers. As a result, our sales pipeline is stronger than ever, and we are expecting to convert some of these leads in the next few quarters. We typically start working with one game from a big developer and then expand to more of their games over time. As an example, we have just launched Klondike Adventures - a top 100 grossing title. We have already worked with them on another game - and are now taking over their Amazon app store business for Klondike while expanding distribution to our other stores. "Take-overs" is becoming a proven and successful model for us. We instantly add growth for Flexion while boosting revenue from alternative distribution at a lower operating cost for developers. We have also signed EverMerge from Big Fish Games. Big Fish Games is part of a public group (Aristocrat) which includes Plarium and Product Madness. Similarly, this could offer expansion opportunities for us in 2024. EverMerge is expected to launch in the 2nd quarter, and we have high hopes for this and our other new titles in 2024.
One reason for the stronger developer interest is the difficult user acquisition market, where it is increasingly challenging to achieve positive returns due to changes in user tracking (IDFA) and high store fees. Another is that we continue to see growing expectations from developers in relation to the new regulatory changes such as the Digital Markets Act (DMA) in Europe, which came into force earlier this month aimed at opening up large "gatekeepers" such as Google and Apple. Epic and Spotify are at the centre of this. They have been challenging Apple and Google for years and are now starting to win. This gives the market a further boost of confidence. As a result, new app store initiatives are launching around the world. Some of these are from our existing partners such as ONEstore, Digital Turbine (DT) and Xiaomi but also from newcomers. Other activities such as developers launching their own web stores using third-party payments, to attract a higher margin, is also becoming commonplace. Driven by the need to get higher payouts to fund marketing, more freedom and control of their own userbases, we expect developers' interest in Flexion's services to grow even stronger over time. We have identified and monitored these trends for several years and positioned ourselves strategically to leverage this shift. This is now accelerating through the introduction of regulatory pressure which will benefit Alternative Distribution.
We are therefore preparing several initiatives to support game developers in their efforts to expand their non-Google Play business. Beside growing developers' alternative store presence and building up our influencer marketing offering, we are planning to support new distribution opportunities in partnership with companies that can offer seamless and scalable game distribution of non-Google Play versions. This distribution, which occurs outside Google Play, is already taking place and is powered by advertising. The obvious opportunity for developers is to switch to a different version of a game that uses third-party payment services and achieve higher payouts. This is something that Flexion is an expert in and can support developers with. DT is one of a few larger companies that has built so-called direct distribution channels consisting of more than 800m devices worldwide with their software. We announced a strategic partnership with DT during 2023 and as a step in strengthening this partnership, DT announced a minority stake in Flexion in February. Naturally, this is exciting and a strong testament to our value proposition and market position. We have since then recruited a new senior manager to drive this new direct-to-consumer initiative going forward. Based on initial feedback from developers, most of them are very interested in this type of new distribution and marketing service. It is a highly strategic growth opportunity for us as it can scale quickly through developers own advertising budgets. We will invest in the programme during 2024. The same applies to our user acquisition initiative where we are stepping up efforts by building a dedicated team to drive this forward. I am pleased to say that after nearly two years of development, our new developer SDK (software development kit) is gearing up for rollout. This allows developers to easily integrate our tech into their games and be ready for features and services that Flexion will introduce in the future. As an example, game developers that want to explore new direct distribution or new app store opportunities do not need to change their game if they are already integrated with us. This new and improved service is critical for us to support and scale our portfolio of top-grossing titles over time.
In terms of the general market outlook, we expect the global games market to return to growth in 2024. Fortunately, we have not been affected by the downturn in same way, as alternative markets continue to grow faster than the total market. It is now easier for us to find and recruit talent for our growth projects and we are strengthening our teams, as we are stepping up a level, through bigger and stronger partnerships with game developers. Our strong financial position and fast growth, combined with a robust and exciting market position, allow us to fully leverage these new growth opportunities ahead.
In the longer-term perspective, our three-year target is to grow total revenue by 100% which would imply a CAGR of 26%. In terms of guidance ahead, we expect to generate between USD 21-24m in revenue during Q1. We will continue to provide quarterly updates and revenue guidance in USD, which is our primary trading currency and considerably less volatile than GBP.
Jens Lauritzson - CEO
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