Scaling Mobile Games And IP Partnerships Will Drive Powerful Long Term Upside Potential

Catalysts

About Modern Times Group MTG

Modern Times Group MTG is a global gaming group focused on scaling casual and mid core mobile and online games through live operations, data driven user acquisition and IP partnerships.

What are the underlying business or industry changes driving this perspective?

• Rapid scaling of multiple new casual titles like Crossword Go and Tile Match, combined with successfully iterated soft launch pipelines, positions MTG to compound user growth and in app purchase revenues over several years. This supports sustained double digit top line expansion.
• Ongoing geographic expansion and localization of leading word games into new languages and territories is structurally increasing the addressable player base. This should lift both revenues and ARPDAU as cohorts mature.
• Deepening use of high impact IP integrations, exemplified by Teenage Mutant Ninja Turtles in RAID: Shadow Legends and the growing franchise road map for Warhammer 40,000: Tacticus, strengthens player engagement and monetization. This supports premium pricing power and higher net margins.
• Accelerating direct to consumer initiatives across studios, supported by favorable regulatory momentum on platform fees, is expected to structurally improve unit economics over time. This should drive higher EBITDA margin and stronger earnings growth from the same gross bookings.
• Disciplined but materially higher user acquisition spend into proven growth titles in Racing, Strategy and casual franchises, supported by strong ROAS tracking, should translate into an enlarged high value player base and rising recurring revenues with attractive EBITDA contribution.
• High and increasingly normalized unlevered cash conversion towards the 60% target, together with low financial leverage, gives MTG significant firepower to reinvest in marketing, live ops and selective M&A. This supports faster revenue growth while compounding earnings per share.

Assumptions

This narrative explores a more optimistic perspective on Modern Times Group MTG compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Modern Times Group MTG's revenue will grow by 11.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -2.0% today to 12.1% in 3 years time.
• The bullish analysts expect earnings to reach SEK 1.7 billion (and earnings per share of SEK 16.81) by about December 2028, up from SEK -199.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK645.3 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 15.6x on those 2028 earnings, up from -65.1x today. This future PE is greater than the current PE for the GB Entertainment industry at 14.1x.
• The bullish analysts expect the number of shares outstanding to decline by 1.01% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.87%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The portfolio remains heavily dependent on a small number of mature flagship games like RAID, Warhammer 40,000: Tacticus and Forge of Empires, which already contribute over half of group revenues. If player engagement erodes or competitors launch stronger live ops and IP driven titles, MTG could face stagnating or declining bookings that weigh on group revenue and earnings growth.
• Structural decline or underperformance in aging franchises such as Tower Defense and legacy Plarium titles, where management does not expect a return to growth, may more than offset gains from newer games if the replacement pipeline slips or fails. This would cap overall organic growth and compress net margins as fixed costs remain high relative to revenues.
• MTG is materially increasing user acquisition spending, now running near 37% of revenues. A long-term shift in advertising algorithms, higher CPIs in peak seasons or weaker return on ad spend could force the company either to cut back growth investments or accept structurally lower EBITDA margin and earnings quality.
• The strategy leans on expanding direct to consumer channels and regulatory changes that might reduce app store fees over the medium to long term. If legal and platform outcomes are less favorable than expected or roll out more slowly, MTG may not realize the anticipated unit economics improvement, limiting upside to net margins and free cash flow generation.
• Execution and timing risks around PlaySimple's potential IPO and subsequent M&A led expansion in casual games could expose MTG to valuation volatility, integration challenges and misallocated capital. This may increase leverage or acquisition related amortization and drag on reported earnings and cash conversion.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Modern Times Group MTG is SEK187.0, which represents up to two standard deviations above the consensus price target of SEK155.67. This valuation is based on what can be assumed as the expectations of Modern Times Group MTG's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK187.0, and the most bearish reporting a price target of just SEK135.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be SEK14.1 billion, earnings will come to SEK1.7 billion, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of SEK111.7, the analyst price target of SEK187.0 is 40.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.