GDEV's Founder CEO Evaluates M&A Deals Using These 5 Metrics

In entertainment and video games, game pipeline and intellectual portfolio are among the first things that investors pay attention to. The more diverse a company’s portfolio with existing titles and upcoming games, the better. IPs are a massive driver of future earnings; they could be converted into sequels, spin-offs, or licensing deals.

GDEV, as a NASDAQ company, has already experienced three M&A deals. In 2022 we spent about $100 million investing in a few studios. Our long-term strategic goal is to grow and scale high-potential studios post-acquisition.

Beyond creative assets and maturity of the team, we also look closely at how well the business performs. Here are the key metrics we use to evaluate the financial and operational health of video game studios during M&A assessments.

User Economics: LTV/CAC Ratio and Retention Rates

1. LTV/CAC Ratio

One of the main questions for investors, when evaluating potential candidates for an acquisition, is, does the company spend efficiently to acquire profitable users? 

The LTV to CAC ratio answers this question. This metric shows how efficiently a game turns user acquisition spend into revenue. Basically, it measures the customer lifetime value (LTV) of a customer to the cost of acquiring them (CAC). 

LTV is the total revenue a customer generates over the time they use the product. CAC reflects the total amount the company spends to attract a new customer (user acquisition and operating expenses). 

Investors check if the company's LTV/CAC ratio is high or low. The high ratio means that marketing works effectively, and businesses attract high-LTV customers. Low indicators raise concerns about retention and monetization. Customer acquisition strategies are scalable or just expensive experiments? 

The LTV/CAC ratio in gaming varies a lot depending on the genre and product stage. A ratio above one is considered high.

Let's say a mid-core strategy game earns an average LTV of $15 per user. The team spends $10 to acquire each user (CAC). That gives an LTV:CAC ratio of 1.5:1, meaning they earn $1.50 for every $1 spent. The product shows moderate monetization and decent user engagement.

If this ratio holds steady, the studio can increase UA spend to accelerate growth without hurting profitability. So, the LTV/CAC ratio It’s a crucial metric for assessing scalability: if you can profitably acquire more users, you can justify more aggressive marketing spending.

Even small improvements in this ratio can lead to major changes in company valuation. 

2. Retention Rates (D1), (D7), (D30)

Retention tracks the percentage of users who return to the product after their first use. It's typically measured at Day 1 (D1), Day 7 (D7), and Day 30 (D30). 

D1 retention shows immediate value; users see something worth coming back to right away. 

D7 retention describes habit formation; it often correlates with users understanding core loops.

A D30 retention indicates a long-term engagement and product-market fit.

For all these metrics, the higher the retention, the more successful the product is. 

For a long time, companies defined strong retention as hitting 40% on day one, 20% on day seven, and 10% on day thirty. Now, as user acquisition costs rise, businesses aim for 50% or higher on day one to stay competitive.

What's more important about retention is that it directly influences LTV. If users stay longer (high retention), they might pay more and increase their total value to your business. 

Match games have the highest retention rate across all game genres, at 32.6% for day one and 7.1% for day 30. At the same time, strategy games have the lowest retention rate by day one, at 25.3%, while hypercasual has the lowest at day 30.

What’s considered a strong retention rate? It varies a lot, depending on the game’s genre, product stage, and business model. For example, Day 1 retention of 30-40% is often considered as high, but even with a lower rate, you can still create profitable games.

The common reasons for low retention rates could be frustrating gameplay, poor onboarding experience, aggressive monetization.

Monetization and Engagement: ARPU/ARPPU and MAU/DAU

3. Revenue per Active User (ARPU/ARPPU)

ARPU (average revenue per user) is a total revenue divided by all active users. ARPU includes all users who have installed and used the app, regardless of whether they've made a purchase. In contrast, ARPPU (average revenue per paying user) only counts users who have made at least one payment. 

With ARPU, investors assess the quality of users and how well monetization models (IAPs, ads, subscriptions) are working. At its core, metric indicates monetization efficiency and depth, as it reveals  how much value each user brings in.

Looking at the broader mobile gaming market, the global ARPU is projected to reach $60.58 by 2025, and is expected to grow to $65.26 by 2029, driven by the increasing number of mobile gamers and improvements in monetization strategies.

High ARPU justifies higher CAC and may signal strong in-app economics typical of successful premium game studios. To reach strong performance, companies are trying to provide engaging gameplay, fair monetization, clear goals, regular rewards, and responsive updates. At the same time, aggressive monetization and poor progression could cause low ARPU. 

4. Monthly Active Users (MAU) & DAU/MAU Ratio

The DAU/MAU ratio, in simple terms, is the daily and monthly active users. MAU reflects overall scale and reach, while DAU/MAU shows depth of engagement. This metric is more about habits, a game’s popularity with users over time. A high ratio means players keep coming back. A low ratio warns that your audience is losing interest and provides insights into the game’s stickiness and popularity over time.

The DAU itself could be a very tricky indicator, as the number of users doesn’t always mean success. For example, in a free-to-play game with in-app purchases or ads, a high DAU doesn't translate into revenue.

A high DAU/MAU ratio is generally considered above 0.2 (20%). In more successful or highly engaging games, the ratio can range anywhere from 0.2 to 0.5 (20% to 50%). 

If we take gaming apps, a DAU/MAU ratio of approximately 20-30% is considered good for gaming apps. It's a positive indicator that users are engaging with the game frequently, not necessarily every day. However, game genre and product stage both play a big role in how this metric turns out.

Operational Profitability: EBITDA

5. EBITDA 

EBITDA (earnings before interest, taxes, depreciation, and amortization) is a key metric to assess a company's core operating profitability. By excluding non-operating and non-cash expenses, it reflects how efficiently a business generates earnings from its main operations, regardless of its financing or tax structure.

For enterprises with varying capital structures or tax circumstances, EBITDA is especially helpful for comparison. Both quarterly margin reports and M&A analyses feature this metric.

What should be considered a high EBITDA? It varies on the industry and strategy. Let's say, a small studio with a higher margin is more efficient, than a larger company with a smaller profit.

EBITDA demonstrates for investors a company’s operational efficiency as well as the proportion of its earnings attributed to operations. It precisely represents business cash flow. 

High EBITDA margins indicate strong operational leverage and financial health. The business scales sustainably and doesn't need constant external funding.

Wrapping Up 

M&A and financing in the video game industry grew 39% year-over-year to $27.3 billion from more than 967 deals in 2024 (Drake Star Global Gaming Report Q4 2024). M&A remains a great opportunity to succeed, but only if investments are smart. 

While the key metrics are a starting point, we also evaluate the quality of the team, the company’s vision, innovation and uniqueness of the game genre. It takes both a high-level perspective and deep analysis to truly understand a company's potential.