Verve Group

* Lack of a diversified and wide revenue base, potentially exposing the company to risks associated with market fluctuations or customer loss.
* Possible cyclical nature of the advertising business, which could impact financial performance during economic downturns.

* Strong recurring revenue model based on advertising volumes, enhancing business stability and predictability.
* Asset-light business model allowing for efficient scaling with high incremental returns and minimal reinvestment needs.
* Clear competitive moat through extensive database and market leadership in the in-app advertising market.

* Lack of consistent earnings growth, with EPS growth not exceeding historical averages or maintaining stability over longer periods.
* Net debt exceeds two times operating cash flow, potentially indicating challenges in debt management.
* Absence of dividend payments or growth, limiting appeal for income-focused investors.
* Return on Equity (ROE) has not consistently reached 20% over the last five years, indicating potential room for improvement in capital utilization.

* Strong profitability with gross profit margin exceeding 40% and operating margin above 20%, indicating pricing power and competitive advantage.
* Consistent revenue growth above industry average over the last five years, suggesting market share gains and strong demand.
* High operating cash flow conversion (above 80%) over the past five years, demonstrating ability to generate real cash profits.

* EPS growth has been dampened by high debt and interest costs, potentially impacting overall financial performance.
* Lack of clear information about sustainability-related performance incentives in executive compensation plans.
* Insufficient information available to assess the CEO evaluation process and succession planning.

* Visionary CEO with long-term perspective and deep industry knowledge, consistently delivering on promises and creating shareholder value.
* Strong commitment to innovation and strategic planning, focusing on ID-less solutions and niche market segments.
* Clear and consistent investor communication, emphasizing long-term business value and transparency about mistakes.
* Founder-CEO owns a significant stake (c25%) in the company, aligning management interests with shareholders.

Q4&#8217;21 deviation table
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Net sales came in stronger than expected, while the Adj EBITDA was entirely in line with our estimates. Furthermore, lower D&amp;A than expected led to higher EBIT than forecasted.
Sales came in 7% higher than expected and managed to grow 36% organically. The beat stemmed from the media segment. The inclusions of Smaato and further gained market share due to its access to high-quality first-party data were a few of the key drivers in the quarter. Overall, the media segment managed to grow impressively 67% organically in the quarter. Sales for the games segment came in short of expectations and grew meager 3% sequentially despite a seasonally strong quarter. We believe the weaker than expected number is fewer releases of new extensive game updates.
Regarding profitability, Adj EBITDA was precisely in line with our estimates. We deem this impressive since the opex base came in much higher than we forecasted and rose 34% y/y. Further investments into R&amp;D, hiring key employees, and higher UA spend than usual were the primary explanations due to the higher opex level.
Once again, the media segment illustrated its scalability and reached an Adj EBITDA margin of 24% (9.9). However, the game segment&#8217;s profitability came in lower than our estimates. One of the reasons is higher UA spending than usual. Previously MGI has spent roughly 8% of sales on user acquisition. This ratio increased to 10-12% in the quarter. MGI plans to release more new games than in previous years, which will boost organic growth in the game segment. However, we have the impression that UA spending will remain higher in the upcoming quarters to attract new players, which will harm the margins in the game segment.
Revisions 
MGI&#8217;s management provided guidance regarding sales and Adj EBITDA for FY 2022. Sales are expected in the range of EURm 290-310, while Adj EBITDA is expected at EURm 80-90.
This was slightly below our estimates why we revised our forecast. We cut our sales, and Adj EBITA estimates for 2022 -2023&#8217;e by 2-6% and 6-9%, respectively.
The back catalog of its existing game portfolio performed weaker than expected in the quarter, which is why we reduced our forecast for the game segment. Furthermore, releasing new games comes with high risk, and there is a chance that upcoming game releases perform below management expectations. We also believe higher UA will follow in line with the game releases and attract new or keep existing players in its games. Furthermore, one additional benefit of having both Media and Games in-house is that newly acquired game players contribute with more first-party data that the media segment could leverage. Thus, increasing the CPMs for its customers makes its platform highly attractive.
The media segment continues to shine, and we expect the gain trajectory to continue. MGI focus on the open internet segment, and its full-stack software platform cover the entire value chain. Hence, a massive amount of data could be delivered to the advertisers, enabling the advertisers to target the right customers and thereby increase their ROI. Furthermore, The open internet market is fragmented. We believe MGI&#8217;s media segment will capitalize on these opportunities, so we expect further R&amp;D investments and the hiring of key employees to hold back margins for the upcoming year, but will support organic growth in the long run.
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Valuation
On our estimates, MGI currently trades at 8.2x EV/EBITA (22&#8217;e). We deem this attractive as its offer exposure to the fast-growing ad-tech market with superior profitability. We forecast a 21-24&#8217;e sales and EBITA CAGR of 15-21%.
We revise our valuation accordingly. Our new base case stands at SEK 68 (75). At our base case, MGI would trade at 15x EV/EBITA (23&#8217;e).