Stillfront: Trimmed growth forecast, increased EBITDAC

Research Update



Redeye updates on Stillfront following the company’s Q2-results where revenue was close to our expectations while EBITDAC was stronger than expected. The growth outlook remains uncertain, and we have trimmed our growth forecast somewhat, however, EBITDAC estimates are slightly increased on the back of stronger profitability and lower capital development costs.



Hjalmar Ahlberg

Anton Hoof

Strong profitability in Q2

Stillfront reported Q2 revenue in line with our forecast although organic growth was somewhat lower than our estimate. However, EBITDAC was much stronger than expected, driven by lower-than-estimated UA costs and capitalized development.

Growth outlook remains uncertain

Commenting on the outlook, Stillfront states that it has seen indications of a stronger underlying market and reiterates that it will return to organic growth during H2 2023 where growth also will be supported from new games going into soft-launch. Still, with a high focus on ROI and stricter capex allocation we have slightly lowered our growth assumptions for 2023-25E.

Strong profitability offsets trimmed growth forecasts

While we have lowered our growth assumptions, we have increased our EBITDAC estimates driven by the beat in Q2 for 2023E and lowered capitalised development costs for 2024-25E. Our valuation range is unchanged where the base case of SEK33 implies an EV/EBITDA of c8x for 2023-24E while the share currently trades at c4-5x EV/EBITDA 2023-24E.

Key financials

Revenue Growth36.7%29.3%0.9%3.7%4.8%
EBIT Margin33.1%28.4%26.7%26.5%26.4%
Net Income597.0546.0247.8654.1716.5

Strong profitability in Q2

Stillfront reported revenue of SEK1,812m for Q2 2023 which was in line with our estimate of SEK1,804m. Organic growth was -5% while we had forecasted -3%. The company reported strong profitability with an EBITDAC-margin of 28% while we had forecasted 24% and the EBITDAC of SEK516m was 21% above our forecast of SEK427m. The strong profitability was driven by a strong gross margin together with lower UA costs as well as lower than forecasted capitalized development costs (c11% of sales while we forecasted c13% of sales). EBIT was also above expectations coming in at SEK275m while we forecasted SEK252m. Net result was negative owing to a revaluation of earn-outs driven by Albion Online and discounting effects.

Looking at the performance per game segment, Strategy was somewhat lower than expected while Simulation, Action & RPG was stronger and Casual largely in line with our estimate. The strong performance in Simulation, Action & RPG was mainly driven by Albion Online. UA costs were lower than expected in both Strategy and Casual while it was higher in Simulation, Action & RPG.

Results outcome
SEKmQ2 22Q3 22Q4 22Q1 23Q2 23EQ2 23ADiff, %
Work for own use151160162158162148
Other income6871003
Total Revenue1,9681,9561,9501,9261,9661,963
Direct costs-439-439-426-392-415-394
Gross profit1,3721,3491,3551,3661,3891,4182%
Gross margin, %76%75%76%78%77%78%
UA costs-474-429-439-473-467-434
Personnel expenses-303-307-307-312-313-323
Other costs-115-111-106-109-110-104
Total opex-892-847-852-894-890-861-3%
Adj EBITDAC38841343741642751621%
Adj EBITDAC margin, %21%23%25%24%24%28%
Net income1158620359133-54-141%
Source: Redeye Research
Bookings and UAC
SEKmQ2 22Q3 22Q4 22Q1 23Q2 23EQ2 23ADiff, %
Active portfolio, SEKm1,7131,6941,6931,6531,7141,698-1%
Simulation, Action & RPG38337238340041446713%
Casual & Mash-up725723724667691677-2%
Other, SEKm927867929011224%
UA Costs469427437466467428-8%
Simulation, Action & RPG9285831131081146%
Casual & Mash-up223177192208207184-11%
Source: Redeye Research

Growth outlook remains uncertain

Stillfront reiterated its view that the company and the market will return to organic growth during H2 2023. The company further comments that it has seen improvements during Q2 with positive momentum on marketing ROI while it also sees potential for new game launches to help growth in H2 2023. However, the company also remains prudent when deploying UA and capex for growth investments for game development which partly drove the strong profitability in Q2. Overall, we believe growth is likely to be somewhat lower than we earlier forecasted and we have reduced our organic growth for 2023E to negative 3% (previous negative 2%) while the forecast for 2024E is 4% (previous 5%) and 2025E is 5% (previous 6%). The chart below illustrates revenue per genre and total organic growth for the group over 2019-2025E.

Stillfront: Revenue per genre and group organic growth

Source: Redeye Research

Strong profitability offsets trimmed growth forecasts

While we have lowered our growth forecasts this is mitigated by stronger profitability and reduced capital development costs. For 2023E our EBITDAC is increased with 7% driven by the strong beat in Q2 and slightly profitability in Q3-Q4 2023. Our 2024-25E EBITDAC is increased with 1-2% driven mainly by lower capital development. The table below summarises quarterly financials for Q1-Q4 2023 and annual financials for 2021-25E.

Stillfront financials, SEKm
SEKm20212022Q1 23Q2 23Q3 23EQ4 23E202320242025
Growth, %37%29%5%0%-3%2%1%4%5%
Work for own use463610158148156164626665696
Other income1928103001300
Total Revenue5,9387,6951,9261,9631,8891,9847,7628,0488,431
Direct costs-1,224-1,674-392-394-399-419-1,603-1,661-1,740
Gross profit4,2325,3831,3661,4181,3341,4025,5205,7225,994
Gross margin, %78%76%78%78%77%77%77%78%78%
UA costs-1,407-1,811-473-433-393-465-1,764-1,820-1,891
Personnel expenses-889-1,194-312-323-321-326-1,282-1,357-1,451
Other costs-293-421-109-104-107-107-427-448-460
Total opex-2,589-3,426-894-860-821-898-3,473-3,625-3,802
Capitalised dev-621-996-224-192-199-209-825-812-812
% of sales-11%-14%-13%-11%-12%-12%-12%-11%-11%
Adj EBITDAC1,5041,5994165174704581,8611,9492,076
Adj EBITDAC margin, %28%23%24%29%27%25%26%26%27%
EBITDA margin, %37%34%35%38%39%37%37%37%37%
ow PPA-664-929-220-222-222-222-886-888-888
EBIT margin, %19%12%12%15%14%13%14%15%15%
Net finance-242-97-107-272-85-85-549-200-200
Tax rate, %-25%-27%-44%-1900%-25%-25%-43%-25%-25%
Net income59754659-54122120248654716
Source: Redeye Research


With small changes to estimate, we leave our valuation range unchanged where the base case stands at SEK33 while the bull case is SEK49 and the bear case SEK26. As illustrated by the charts below, Stillfront trades at c5x NTM EV/EBITDA, which is at the lower end of its 2018-23 range and below the average of c9x. On our base case of SEK33, the share would be valued at 8x 2023-24E EBITDA.

Source: Factset

Investment thesis


Diversified gaming portfolio with focus on high return on UA investments

We believe Stillfront has an attractive and diverse gaming portfolio with a large number of games focusing on several different genres creating a low dependence on individual games. Coupled with a focus on strong returns on user acquisition we believe the company is well positioned to deliver profitable growth over the coming years. With a highly fragmented gaming market, the company is also likely to continue growing by M&A albeit with smaller impact than historically due to its increased size. Overall, this should yield continued earnings growth in Stillfront supporting our positive view on the company.


Solid profitability and cash generation supports business model

Stillfront’s focus on directing UA investments to the games and channels that yields best returns are seen in its solid profitability and cash generation. With EBITDA-margins of around 35-40% the company has higher profitability than free-top-play sector peers. With a focus on long-life games it also has limited investment requirements which can be seen in a solid cash conversion (historically around 40-50% FCF/EBITDA excluding acquisitions).


High competition for M&A and mixed track record

Stillfront has mainly grown its business through M&A having carried through more than 20 acquisitions since 2016. While most acquisitions have been done at attractive valuations and performed well, there are examples of weaker performance as well as high valuations which creates uncertainty of the potential for future M&A. High valuations are also an indication of another challenge for Stillfront where competitors also aim to consolidate the industry creating upwards pressure on valuations which also lowers the potential returns from M&A.


Base case DCF supported by strong profitability and cash generation

We find a base case valuation of SEK33 per share Stillfront which is derived from a DCF-valuation. The base case implies an EV/EBITDA multiple of 8x on our 2023E EBITDA while the share has historically traded in a range of 5x to 15x twelve months forward EBITDA. Our base case assumes growth of 5% between 2024-38E and an average EBITDA-margin margin of 39% for the same period. The terminal growth is set to 2% by 2039 with an EBITDA-margin of 37.5%.

Quality Rating

People: 3

Stillfront has a strong management team with strong insights into the free-to-play gaming sector. Insiders and founders have significant ownership that aligns incentives with other shareholders.  The track record is mixed with performance being weaker than expected in 2021 while the company has seen improved performance during 2022.

Business: 3

Stillfront’s products have high gross margins and a relatively stable customer base with good leverage in the business model. The underlying growth in the gaming industry is a key driver for continued future growth for the company. We think Stillfront has good potential for both organic growth and growth fueled by acquisitions the next coming years.

Financials: 2

Stillfront’s focus on high returns on user acquisition investments means the company creates profitable growth. The company has positive cash flows and high net margins on their products. Both stability and profitability are increasing steadily. However, organic growth performance has been mixed and return on asset and equity is low. Some of the acquisitions are funded by debt, and the company keeps itself at a healthy leverage ratio with a target of below 2x net debt to EBITDA. Gaming products are somewhat differentiated and are not affected by a greater extent of the business climate in the world.


Income statement
Cost of Revenue1,224.01,674.01,603.31,661.31,740.3
Operating Expenses2,107.02,788.02,834.42,961.03,106.0
Shares in Associates0.
Interest Expenses242.097.0549.0200.0200.0
Net Financial Items-242.0-97.0-549.0-200.0-200.0
Income Tax Expenses197.0206.0184.9218.0238.8
Net Income597.0546.0247.8654.1716.5
Balance sheet
Non-current assets
Property, Plant and Equipment (Net)127.0157.0118.774.428.0
Intangible Assets5,244.06,149.05,376.74,580.83,745.0
Right-of-Use Assets0.
Other Non-Current Assets46.
Total Non-Current Assets18,169.022,440.021,629.320,789.219,907.0
Current assets
Accounts Receivable747.0697.0854.8886.0928.2
Other Current Assets0.
Cash Equivalents1,133.0989.01,797.03,285.94,877.7
Total Current Assets1,880.01,686.02,651.84,172.05,805.8
Total Assets20,049.024,126.024,281.124,961.225,712.8
Equity and Liabilities
Non Controlling Interest23.
Shareholder's Equity9,772.014,237.014,484.815,138.815,855.3
Non-current liabilities
Long Term Debt3,950.04,635.04,635.04,635.04,635.0
Long Term Lease Liabilities0.
Other Non-Current Lease Liabilities3,418.03,274.03,274.03,274.03,274.0
Total Non-Current Liabilities7,368.07,909.07,909.07,909.07,909.0
Current liabilities
Short Term Debt597.
Short Term Lease Liabilities0.
Accounts Payable1,035.0805.0712.4738.4773.5
Other Current Liabilities1,253.01,091.01,091.01,091.01,091.0
Total Current Liabilities2,885.01,975.01,882.41,908.41,943.5
Total Liabilities and Equity20,048.024,127.024,282.124,962.225,713.8
Cash flow
Operating Cash Flow1,620.02,028.01,668.42,338.12,442.6
Investing Cash Flow-4,176.0-3,758.0-860.4-849.1-850.8
Financing Cash Flow2,612.01,463.

Rating definitions

The team

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