Earnings Call: Stillfront's Q3 2024 Results Showcase Resilience Amidst Challenges

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Earnings Call: Stillfront's Q3 2024 Results Showcase Resilience Amidst Challenges

In the third quarter of 2024, global gaming studio group Stillfront Group (SF.ST) reported net revenues of 1,595 million SEK, reflecting a slight decline of 4.6% year-over-year. However, the company's gross profit margin increased by 2 percentage points compared to last year, reaching 80%. Interim CEO Alexis Bonte attributed the margin improvement to a higher share of bookings directly from consumers. Despite the revenue decline, free cash flow increased by 49% year-over-year, reaching 298 million SEK.

Key Highlights:

  • Net revenue decreased by 4.6% year-over-year to 1,595 million SEK.
  • Gross profit margin rose by 2 percentage points year-over-year to 80%.
  • Free cash flow increased by 49% year-over-year to 298 million SEK.
  • User acquisition costs rose to 29% of net revenues, primarily due to investments made in the recovery of Super Free.
  • The company announced a new share buyback program of up to 40 million SEK.

Company Outlook:

  • The seasonal slowdown in gaming activity started earlier than usual, with expected recovery as the quarter progresses.
  • User acquisition investments are expected to rise in the fourth quarter, though caution is being exercised due to potential impacts from the U.S. elections.
  • The company aims to achieve savings of 200-250 million SEK by the fourth quarter of 2025, having already realized annual cost savings of 39 million SEK.
  • The next Capital Markets Day is planned for February 6, 2025, in Stockholm.

Negative Highlights:

  • Bookings declined by 5%, with a slight decrease observed in strategy games such as Supremacy.
  • User acquisition for Sunshine Island fell by 41% quarter-over-quarter.
  • Storm8 continues to face challenges in the casual segment.

Positive Highlights:

  • Average revenue per daily active user (ARPDAU) in the active portfolio increased by 14% year-over-year.
  • Direct-to-consumer channels improved by 5 percentage points.
  • The company made significant progress in reducing its gross debt by 1.6 billion SEK within two years, contributing to a decrease in leverage ratios.

Shortcomings:

  • A poorly received update for Shakes & Fidgets led to challenges.
  • Despite a slight decline in bookings and revenues, the company sees growth opportunities in its direct-to-consumer initiatives.

Q&A Highlights:

  • Stillfront is actively evaluating the sale of underperforming franchises.
  • The search for a new CEO is ongoing, with Alexis Bonte serving as interim CEO.
  • Regular updates for Albion Online are planned, and there is optimism regarding its long-term potential.

Stillfront Group's earnings call showcased a mixed performance for the third quarter of 2024. While net revenues experienced a slight decline, the company's focus on direct-to-consumer channels and operational efficiency strategies led to a healthier gross profit margin and a strong increase in free cash flow. The company is also making progress in effectively managing its capital through debt reduction and share buybacks, while planning for further cost savings and emphasizing organic growth, navigating market volatility with a clear strategy for the future.