Next Games - Downgrade to SELL

Next Games Q3 results were weak and highlighted the volatility in earnings stability when developing and launching new games. The company’s cash assets have taken a big dent and with the existing games not being able to finance the development of new games Next Games is looking into other funding options. With the financing situation overshadowing the long-term potential we downgrade to SELL with a target price of EUR 1.8 (8.5).

Our World launch burdened results

Next Games Q3 results were weak, with EBIT at EUR -10.7m. Profitability was significantly affected by user acquisition and marketing costs relating to Our World, released in mid-July, along with development costs. Revenue in Q3 was EUR 13.4m (NML 5.6m, Our World 7.8m). Our World saw a good start after release, but a growing number of active users lead to technical issues and a weaker second half of the quarter. The technical issues have decreased, and key metrics saw stabilization towards the end of the quarter. A new license agreement was signed during the quarter and Next Games now has four games in development.

Financial situation in focus

With the larger than anticipated loss in Q3, impacted by the weaker sales of Our World, Next Games is looking into options for securing its financing. The company’s cash balance at the end of the quarter was EUR 8.8m along with an unused credit limit of EUR 5m. Next Games did not comment further on the types of financing sought, but we note that the effect of dilution in the case of a share emission at current share prices could be significant.

SELL (BUY) with a target price of EUR 1.8 (8.5)

At the current development pace and with only two live games the need for financing in the near future appears evident. We now expect clearly deeper losses and we emphasize the financing risk. We downgrade to SELL (BUY) with a TP of EUR 1.8 (8.5).

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