Embracer reported Q3 sales +17% vs. ABGSCe and +21% vs. Infront consensus. This was driven by a strong performance from the company’s mobile studios that grew sales by 34% organically (pro forma), but also by solid overall organic growth of +16% in the Games segment; as usual supported by a strong back catalogue that accounted for 93% of game sales, with key drivers such as Hot Wheels Unleashed and Metro in the quarter. In addition, sales in Partner Publishing came in +29% vs. our expectation. Adj. EBIT of SEK 1,119m (+1.4% vs. ABGSCe, +3.8% vs. cons.) was negatively impacted by significantly higher UAC (user acquisition cost) this quarter (57% of mobile sales, double what some of its peers are spending). This is a noteworthy level of UAC, considering that some peers have said that they find it harder to deploy UAC with attractive ROI post- the IDFA changes. One reason might be that Embracer is less worried about short-term profit, encouraging the studios to think longer-term, which we find hard to argue with. Another highlight worth mentioning: 106 of 108 entrepreneurs that have joined the company since the IPO remain active in the Group. Finally, looking into the next quarter, we expect Embracer to maintain its growth momentum by reporting 10% organic growth.
We increase ’22/23e-’23/24e adj. EBIT by 1%-2%, driven by mobile
We raise ’21/22e-’23/24e sales by 6%, 3% and 3% because of the strong performance by the mobile studios. As we expect Embracer to continue with aggressive UAC, we raise opex, resulting in -4%, +1% and +2% revisions to ’21/22e-’23/24e adj. EBIT.
10x adj. EBIT and solid growth outlook
We keep our fair value range at SEK 115-165. Embracer is trading at 10x ’22/23e adj. EV/EBIT (-40% vs. its 5-year average, and -25% vs. core peers), and we expect the company to grow +10%
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