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Original-Research: Media and Games Invest PLC (von GBC AG): Managementinterview

Original-Research: Media and Games Invest PLC - von GBC AG 
 
Einstufung von GBC AG zu Media and Games Invest PLC 
 
Unternehmen: Media and Games Invest PLC ISIN: MT0000580101 
 
Anlass der Studie: Managementinterview 
Letzte Ratingänderung: 
Analyst: Dario Maugeri, Cosmin Filker 
 
"I would be proud if we can build a Europe based Unicorn" 
 
Media and Games Invest plc (formerly blockescence plc) is a holding company 
focused on the synergetic gaming and media sectors. In the fiscal year 2018, 
the company significantly changed its corporate strategy with the complete 
acquisition of the shares of Samarion SE. At that time, Samarion SE held 
38.7 % stake in the online game publisher gamigo AG, which has thus advanced 
to become Media and Games' most important operative investment. All previous 
(real estate) assets of the holding were sold, making Media and Games Invest 
(with by now 53% of the gamigo shares) a pure play tech-company in the games 
and media sector. GBC analyst Dario Maugeri spoke with Remco Westermann, CEO 
of Media and Games: 
 
GBC AG: Mr. Westermann, following the acquisition of Samarion SE and thus 
gamigo AG, the business model of Media and Games has changed significantly. 
Can you briefly outline this? 
 
Remco Westermann: Media and Games Invest's strategy is based on, and wants 
to strengthen and further build on, the successful strategy of gamigo AG; 
building critical mass in the digital gaming and media markets via a 
combination of bolt-on acquisitions and organic growth. Our 53% subsidiary 
gamigo has been implementing this strategy now for over six years, 
continuously showing steady, profitable growth, with an average 32% revenue 
and 65% Ebitda growth per year in the last 4½ years. 
 
The digital markets for gaming and media/advertising are both very 
substantial with approx. 150 billion USD in digital gaming and approx. 300 
Billion USD in digital advertising worldwide, each growing with over 10% 
year on year. The two sectors have strong synergies; own advertising 
inventory on the gaming side enables a clear USP on the media side, whereas, 
the broad media expertise and scale advantage in media buying build a user 
acquisition USP for the gaming side. 
 
Both sectors demonstrate a strong technological edge. Many players lack 
critical mass, therefore creating a great space for us as a market 
consolidator. With Media and Games Invest as a holding company, having 
access to capital markets, we can speed-up the growth of gamigo in the 
gaming segment, while also increasing our stake in gamigo by buying out 
non-strategic minority shareholders. In parallel MGI is also driving forward 
our growth in the online media/advertising segment via focus on organic 
growth as well as via further acquisitions. 
 
GBC AG: An important growth factor for gamigo AG in recent financial years 
has been the acquisition of gaming companies or the expansion of gaming 
licenses. Most recently, two American companies were acquired. Should 
inorganic growth continue to be the focus and how is your company 
financially positioned in this respect? 
 
Remco Westermann: gamigo has performed well over 20 acquisitions in the past 
six years, acquiring gaming assets as well as complete companies. The most 
recent additions are Trion Worlds, a well-known publisher massively 
multiplayer games for online and console, in Redwood City and Austin (USA), 
acquired in October 2018, and WildTangent, a leading casual games publisher 
and platform, based in Seattle, acquired in April 2019. 
 
In both cases, significant assets of the companies were acquired, leading to 
immediate contribution of earnings and profits of the group. With its 
positive operating cashflow and a substantial amount of cash from its bond 
(listed on the regulated market in Sweden at Nasdaq Stockholm) in 
combination with many available targets, gamigo will, supported by the 
listed MGI, further drive the acquisitive growth. On top of acquisitive 
growth, gamigo and the MGI group also focus on organic growth via a.o. 
licensed game launches, game sequels, internationalization and user 
acquisition. As such, organic growth is an important pillar of the overall 
growth strategy. 
 
GBC AG: How is the integration progressing and what synergy effects can be 
demonstrated for example by the recently acquired American companies from 
gamigo AG? 
 
Remco Westermann: Post-acquisition there is a strong focus on realizing 
synergies, e.g. by merging back-end platforms and migrating the services 
into the cloud, which creates substantial cost savings. One example are the 
data platforms: Trion Worlds operated several datacenters with much spare 
capacity to enable further growth of the games. Now, based on the setup of 
gamigo, the games are moved into the cloud. This lead to only paying for 
capacity that is used, while still having the option to scale-up fast, and 
results in much lower total costs, thanks to economies of scale of the 
group. Also there are no further capex investments required and a much 
better performance with fewer downtimes is guaranteed. The WildTangent 
platform also poses many synergies on the cost side as well as on the 
revenue side, with additional revenue possibilities for the distribution of 
other game titles by the group. 
 
GBC AG: What measures can be taken to promote organic growth, i.e. the 
expansion of games developed in-house or the acquisition of active players? 
 
Remco Westermann: For clarification; we do not take any new game development 
risks. With our current size, developing new games is too risky; developing 
a MMO (massive multiplayer online game) costs e.g. between 2 and 50 million 
USD, takes 3 up to 5 years and has statistically a below 10% chance of 
success. We do however license new games for certain territories that were 
developed by independent studios or foreign, mostly Asian game publishers. 
In licensing we are highly selective and do thorough testing beforehand. 
 
Apart from entirely new games, we like to launch game sequels and extensive 
updates for games where we already have a strong userbase. This reduces the 
risk of game launches substantially and poses a massive opportunity. We are 
concentrating on games with sustainable revenues; MMO's which generally have 
live times of over 10 years and long-term customer relations as well as 
subscriptions for the usage of mostly casual games. Also, 
internationalization and user acquisition for our current games are 
important for growth. 
 
GBC AG: In addition to being a publisher of online games, Media and Games is 
also active in the media sector, i.e. in the B2B segment. What products are 
offered here and what is your growth strategy in this segment? 
 
Remco Westermann: While building critical mass for efficiency reasons, 
gamigo also concluded that for organic growth it needs more capabilities and 
know-how in the field of online marketing and user acquisition. As such, 
media companies and assets were acquired; e.g. Adspree (formerly SevenGames 
Network, acquired from ProsiebenSat.1), a performance-based online user 
acquisition company also operating portals such as browsergames.de, and 
Mediakraft, an innovator in influencer marketing. This gives the group 
in-house media and advertising capabilities, that are leveraged by selling 
their services to competitors and into other sectors, leading to efficiency 
and substantial earnings. Thanks to this, the gaming group has a strong USP 
in the field of user acquisition. As part of the MGI Strategy further media 
companies have been acquired in 2019: ReachHero (a Saas Influencer platform), 
 AppLift (a mobile performance agency) and PubNative (a SaaS supply side 
platform for mobile apps advertising). With these acquisitions, the MGI 
group now is generating substantial revenues next to the gamigo group. 
 
GBC AG: With rising sales, gamigo AG achieved significantly improved 
profitability figures in the first half of 2019. What kind of growth can be 
achieved and how can you actively manage this? 
 
Remco Westermann: The gamigo business model strongly profits from synergies 
of the acquired entities in combination with more volume via organic growth, 
leading to revenue growth but even stronger EBITDA and EBIT growth. Over the 
last 4 ½ years, gamigo had an average annual 32% revenue and 65% EBITDA 
growth. 
Only since two years we have put focus on organic growth, as the years 
before the company concentrated on M&A and the integration of these M&A 
cases only. Organic growth is nowaccounting for a more significant part of 
growth every year. With three game launches coming up in H2-2019, each of 
them being within an already existing customer base, we expect to boost our 
organic growth even further in 2019 as well as in the following years. In 
the coming years, gamigo expects to also continue to grow, with an average 
of 25 - 30% per year. M&A targets are widely available, and we have a strong 
line-up for organic growth. 
 
On the EBITDA side gamigo expects further 25-30% EBITDA, which results in a 
positive cash-flow from operations, further enabling strong growth. Just for 
clarification; gamigo's financials are only part of the overall growth of 
MGI, next to the participation in gamigo, which we further expect to 
increase, MGI also holds several participations in the media sector that 
will start contributing to revenue and EBITDA growth of MGI from H2 2019 
onwards. 
 
GBC AG: Finally, a question for investors with a long-term investment 
horizon. Where do you see the Media and Games in five years? 
 
Remco Westermann: We are already one of the leading game companies in Europe 
and certainly one of the fastest-growing ones. We choose public market 
access with listed stock to be more flexible in doing acquisitions in shares 
next to with cash. Looking back I think we already achieved quite a bit and 
showed that our business model makes sense and works. Looking forward, we 
have the chance to build a listed European gaming and media powerhouse. I 
would be proud if we can build a Europe based Unicorn together with our team, 

(MORE TO FOLLOW) Dow Jones Newswires

September 26, 2019 08:01 ET (12:01 GMT)

© 2019 Dow Jones News
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