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G5 Entertainment: CEO full of confidence at Stockholm meetings

 G5 Entertainment’s CEO Vlad Suglobov visited Stockholm yesterday and had several meetings with investors. One of Nordic Investor’s cooperation partners was present and summarised the most important takeaways:

  •  The presentations were very well attended and general interest was high
  • Unsurprisingly no fundamental news were presented yesterday
  • In December, G5 experienced ca. 4 million downloads in total. A graph illustrated the development of actual downloads and the trend in November and December showed a heavy increase
  • Current income split is roughly 1/3 each for US, Europe and Asia respectively
  • A change of listing (away from Aktietorget) is not high up on the priority list and might take another 1-2 years.
  • G5 will release some 200-250 games during 2012 for all the major platforms (ca. 50 “new unique” titles). This compares to around 70 releases in 2011
  • All of G5 games are recovering their development costs in a matter of months. For its own IPs, the number is around 6-8 months, for games initially developed by partner studios the period varies between 2-5 months
  • All of G5 games, no matter how old they are, are generating income for the company. The oldest game, Supermarket Mania, is soon celebrating 3 years on the market. G5 games are fully depreciated after 2 years which means every cent earned after that goes straight to the bottom line.
  • The Freemium model is becoming more and more attractive in terms of numbers of downloads and revenues. G5 calls it the “Playground” concept and wants to release more games in this format. So far, Virtual City Playground is its only freemium game on the market. Interestingly, the game is generating a constant revenue stream for G5 ever since its release, unlike “regular” games which usually peak soon after their date of release and then show declining revenues. According to CEO Suglobov, around 10% of the gamers that play Virtual City Playground are sooner or later spending actual money in the game, buying investments points etc.
  • The marketing office in San Francisco does now comprise 3 people, having being established during the summer of 2011. CEO Suglobov himself is now working out of California. G5 now employs roughly 20 people in Moscow and 90 in Kharkov.
  • Despite the huge success of G5 games on iPad, the iPhone revenues are still outweighing the revenues generated by iPad.
  • Suglobov highlighted that on the iOS platforms, G5 is making as much money on a game that is placed #150 today as it made on a game placed #50 one year ago.
  • The big success on Kindle Fire was addressed and apparently, the cooperation between Amazon and G5 has been extensive for quite some time. The limited competition since their app store launched is one of the main reasons why G5 is so competitive on the Top Paid 100 list for the Kindle Fire. Naturally, competition will increase but the future for Kindle looks promising and G5 is now making good money on Amazon’s app store. Amazon has roughly 200 million members, being more or less “one-click away from buying a game on the store”.

All in all, a very confident and optimistic appearance of Vlad. The case is more than just intact. We are somewhat disappointed that management does not seem to prioritize a move away from Aktietorget at this point, since this would certainly take away a substantial part of the risk premium which is still weighing on the G5 share. In order to maximize shareholder value, G5 must be listed on a more widely acknowledged list such as the Nasdaq OMX. We believe that a too high of a discount valuation will sooner or later trigger a hostile bid from one of the bigger companies. G5 is performing very well in the space of mobile gaming and its growth and profitability certainly does not go unnoticed among competitors. Vlad’s presence in San Francisco should be positive for contacts in the industry, both in terms of marketing, co-operation with development studios but also potential buyers of the company.

We at Nordic Investor are long G5 Entertainment and you should be too!

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