Long-term profitability is not always seen in the short-term

Stockholm-based mobile games developer/publisher MAG Interactive released its financial results for its Q1 2023 today. The company had 97 million SEK in revenue for Q1 (which is a little less than €40 million per year).

Based on improvements in three key titles (Wordzee, QuizDuel and Tile Mansion), the company increased its marketing spend with 252 % year-over-year to 51.1 million SEK. This hurts the income statement in Q1 (going from profit to loss), but should lead to higher revenue in coming quarters as there are more users to monetize via in-app purchases and advertising.

It’s a classic lifetime value/customer acquisition cost strategy. The “problem” with such a strategy from an accounting point of view is that if things go really well and you are able to increase marketing spend significantly quarter-by-quarter (even as you keep a good LTV/CAC ratio), it is a challenge to be profitable. The reason being that revenue will be recognized over multiple quarters and years (the lifetime), while the costs are taken in the quarter the users are acquired.

Author: Henrik Torstensson

Partner at Alliance VC. Investing in Nordic early-stage tech startups.

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