Stillfront’s Q2-results came in close to our expectation with revenue of SEK1,811m and adjusted EBITDA of SEK639m (we expected SEK1,762m and SEK628m. Revenue was stronger than expected in the Strategy genre where Stillfront saw strong organic growth of 29% driven by among other Supremacy1914, Call of War and Conflict of Nations: WW3 where the company saw strong returns on UA investments. Casual & Mash-up also saw stronger revenue than we estimated driven among other by BitLife while the company also reports that titles from Super Free and Storm8 have seen continued improvements. Simulation, RPG & Action saw lower revenue than we estimated driven by low UA investments as Stillfront shifted these to other segments where it saw better returns.

Looking at profitability, Stillfront reported a lower gross margin than estimated which was driven the acquisition of 6Waves coupled with a decline in revenue from advertising. Going forward, there should be room to improve the gross margin driven by increased advertising revenue and an increased share of own titles in 6Waves. EBITDA-margin was also lower than we had expected driven by higher personnel expenses and other costs while UA costs were close to our expectations. Capitalized development costs and amortizations were also higher than expected driven among other by investments in the Stillops platform and games development.

Overall, our take on the Q2-report is positive as the company has moved back to organic growth while the reiterated guidance of mid-single organic growth for 2022 also suggests continued improvement of this in H2 22. Still, although the growth outlook remains positive, costs were higher than expected and we have increased our costs estimates going forward. As such, while we slightly increase our topline estimates by 1-2% over 2022-24E higher costs result in EBITDA coming down 1-2% over the same period. We have also raised our estimates for investments and together with the lowered estimates we have slightly lowered our valuation range. Our new base case stands at SEK53 (SEK56) with a bull case of SEK74 (SEK75) and a bear case of SEK34 (SEK37). We have also updated our rating on Stillfront based on an updated rating model where the new scores are: People 4 (4), Business 3 (4) and Financials 3 (3).