G5 Entertainment

Research note


G5 Entertainment: Our estimate on net sales for Q2

In the latest quarterly report, G5 Entertainment wrote that the company would not announce any preliminary quarterly sales figures in the near future. However, looking at the ranking on the "Top Grossing lists" we have got indications on how the sales trend look like in the quarter.

According to our estimate, the majority of revenues still comes from Hidden City. About 50% of the company's total revenues come from the United States and 30% from Japan. For this reason, you can get fairly good guidance looking at how Hidden City is moving on the Top Grossing lists in the US and Japan on IOS-devices (Apple). 
If we compare the average ranking on Q1 and Q2, we see that Hidden City has been relatively stable on iPad while it has lost some ground on iPhone. The biggest drop seems to be on the iPhone in Japan. However, the sales drop is also noticeable in the United States. We expect the game to have a 10% lower sales total during the quarter.
This is compensated somewhat by the company's second highest grossing game "Mahjong Journey", which reached a respectable average ranking in the United States, as the game, among other things, climbs from 97 to 76 on the highest grossing list on iPad. The game has also shown strong growth on iPhone, though from significantly lower levels than Hidden City.. 
The company's first game in the genre Match 3, called "Pirate & Pearls", continues to go strong and is now on the same level as "The Secret Society". Both games are now based on our estimate on a shared third place amongst the highest grossing titles in the company's game portfolio.
We have also looked at Supermarket Mania, recently converted into a Match 3 game and the newly acquired titles, currently not available on smartphones "Nightmares from the Deep" and “Kate Malone ". All of these titles are relatively small, which means that they have a very small impact on the company's total sales
We have lowered our estimates somewhat. In dollar terms, this should lead to a decrease in revenue since Q1, of about 6%. However, the dollar has been strengthened by about 6% in the quarter; the turnover is expected to be on the same levels as in the previous quarter. 
Shares in G5 Entertainment has been in decline, following many sector colleagues the last month, losing about 26% of its market value. As our estimates in the table shows, we believe the EBIT-margin will increase in Q2 to approximately 15%. We also believe, as earlier stated, the growth saga will continue, with some minor bumps in the road.  Our fair value range will not change due to the somewhat slower than expected growth rate.  

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