Sweden listed mobile gaming developer and publisher G5 Entertainment reported strong preliminary Q4 2014 sales numbers. Revenues of around SEK 54m in Q4 imply y-o-y growth of 88% and sequential growth of around 21%.
The big question mark remains profitability and that is something the market will not get any answer until the final Q4 report is realised on February 24th. We note that revenues were up 104% y-o-y in Q3, so actually the growth rate in Q4 has slowed down somewhat. At the same time, G5 reported an operating loss in Q3, albeit including one-off costs.
We believe that it is a fair guess that Q4 EBIT margin will be at least 5%, everything else would be a clear disappointment, yet again. However, it is impossible to project given G5’s spending on user acquisition. Also, the company has released new games during Q4 which should burden production expenses. Another black box for investors is G5’s “royalties to developers”.
We note that CEO Vlad Suglobov has bought yet another 10,000 shares last week, so there is no lack of management confidence. G5 remains an interesting company to follow, however, we stick to our view that there are better picks in the mobile gaming sector. Once G5 manages to reduce its dependency on Secret Society, there might be the chance of operational leverage and margin improvement. So far, we see no such signs, however, as the newly released F2P games so far are not even close to the rankings which mean meaningful money.