Flexion Mobile continued to deliver y/y growth in the quarter, with sales increasing by 13% compared to last year, totaling GBP18.3m (16.3), the upper end of the company’s revenue guidance and in line with our estimates. As in the previous quarter, we are particularly impressed by the company’s incremental margins and cash conversion. Adjusted EBITDA amounted to GBP1.6m, 52% above our estimate of GBP1.1m, primarily due to strong gross margins in the distribution business. Along with the report, Flexion provided revenue guidance for Q2 of USD20-23m (~GBP15.7-18m), compared to our Q2 estimate (before yesterday’s Q1 report) of GBP17.9m.

We believe the current challenges in the mobile gaming market, where developers continue to face headwinds in user acquisition, are becoming one of the largest trends in the industry. With the upcoming privacy changes to Google Play (aligned with Apple’s IDFA changes), we think these challenges will become even more significant. Since Flexion, in simple terms, helps developers acquire new users through new app stores and influencer marketing, its product offering becomes even more valuable as traditional user acquisition becomes less effective. Therefore, we believe Flexion’s value proposition will increase significantly in the coming years as developers become more eager for help in acquiring new users.

Following the Q1 report, we made limited changes to our estimates, leaving sales roughly unchanged while making small upward adjustments to costs due to the new accounting policy related to distribution rights. Currently, we forecast a CAGR of c17.5% for 2023-2026e, compared to the company’s plan to double revenues in three years (a three-year CAGR of 26%). Although the share price has surged somewhat in the last month, Flexion continues to trade at almost an all-time low price-to-sales multiple of 0.5x, compared to its three-year average of 1.2x and its high of 3x. We increase our fair value range from SEK6-30 to SEK8-32 and our base case from SEK18 to SEK20 based on the report.