Rovio: Takeaways from Q3 mid-quarter analyst meeting - Nordea

We attended Rovio’s Q3 mid-quarter meeting for sell-side analysts today, which was hosted by IR Timo Rahkonen. The message conveyed by the company was broadly in line with our estimates and daily app store ranking data from data.ai. We highlight the good momentum for Rovio’s second largest game ABDB in particular, whereas the AB Journey (launched 20 January) seems to be still struggling with player engagement and has not recovered to sequential growth. Rovio expects UA costs for Q3 to be the at the higher end of the guidance of 25-30% of Games revenue, thanks to more investment on ABDB. The market environment has continued to be challenging, but signs of easing in market headwinds (reopening, inflation, Apple's ATT policy) on growth are appearing. According to data.ai, the global mobile gaming market (excluding China) declined 8% y/y in Q3, but was up 3% sequentially when comparing July-August monthly run-rates to June. Regarding Apple’s recent price increases on in-app purchases, Rovio estimates that if player behaviour remains constant (hard to predict in reality), this could have a low single-digit positive impact on revenue. For Q3, we forecast 1.5% q/q decline in Games revenue (+9% y/y) with UA costs amounting to 28.2% of Games revenue (guidance: 25-30%). Relative to Infront consensus, we are in line on revenue and 13% above on adjusted EBIT for Q3. We identify the launch of Hunter Assassin 2 (which we model for Q4 2022), potential M&A and signs of revenue recovery for AB Journey as the next potential catalysts for the share.