Tyranny

No I am not talking about the US election ....

The pre-sales of the game are going amazing judging by their Steam position. Paradox has such an amazing fan base for their games. I thought the company came in a bit to expensive in the IPO. I still find it a bit on the expensive side, but looking at the pre-sales of Tyranny you have to think that Paradox can grow revenues aggressively in Q4 2016 and 2017 so a P/S in the high 5-6 range is probably motivated. 

I like to look for 30-50% return potential, here I think its a bit lower. But I just cannot stand besides looking at Tyranny sales and not have a small position. Although I am worried that the Q3 results next week will be on the week side, and all the retail investors in this stock without a proper understanding of the business model will read that as negative and hit the panic sell button. So am buying 50% of my position now and will wait and see what happens next week.

 

Planet Coaster Watch...

While others were up watching the elections I was up counting down to Planet Coaster beta release and it is still in the top-10 Steam global best-sellers list!

Also! 56,000 shares cleared yesterday at 205 pence. 

Btw, if you are fast and can grab Starbreeze below SEK20 today, go ahead and do that!

CD Projekt Red Q3 earnings

You can find it here. For some insane reason, all text is saves as images in the PDF so it's not searchable.

As expected, without only DLC's out, revenue as profits were down YoY.

As Witcher 3 was released in 2015 a more interesting comparison is against 2014. In 2014 the company had total sales of PLN 110m for the first 9 months - compare that to PLN 100m for only the latest quarter and PLN 419m for the first 9 months - that is a 4x growth.

Cheap

I think the stock is a great buy. The company had PLN 800m in sales in 2015, their record year thanks to Witcher 3 being released. That puts it at about 4.7 price/sales which is getting close to EA and ATVI. But P/E 2015 is 11 and P/E 2016 annualized is 16.6 - so still very cheap given the momentum for Gwent and potential for Cyperpunk 2077.

If they release Cyperpunk 2077 next year they can easily have revenues of above PLN 1bn for 2017 and that would probably put it around PE 7 with current profit margins.

GOG

During the first 9 months of 2016 GOG revenue was 27% of total revenue. GOG profit margin is 6% compared to 52% for the core operations.

GOG revenue was slightly up YoY, but given that No Man's Sky was their big release of 2016, the potential of GOG still remains to be seen.

GWENT

The company is very positive about Gwent. They have signed a partnership deal with GAEA, on of the fastest-growing Chinese Interactive entertainment providers, with the goal of publishing GWENT in China.

Starbreeze launches Indie brand

Starbreeze announced today that they are launching a Indie brand together with Lion Game. The first game out is called AntiSphere. As far as I can see it does not look as if this deal involves the creation of new shares - sigh.

Still waiting for those AAA full priced titles to start coming to motivate the current valuation. 

Ubisoft financial H1 results

Some quick thoughts:

As with all distributors, digital sales was up. But for Ubisoft it was +102% YoY, now 72% of revenues. And revenues itself was +36%. In plain numbers, revenue increased with €74m. 

At the same time as revenues increased 36% costs (SG&A) only increases about 1%, showing the power of increased digital distribution (and was also partly due to an increase in back-catalog sales).

They are guiding for financial full year 2017, €1,610-1,670m in sales. 

The finished with this slide reminding us all why you must be invested in this sector: 

ActivisionBlizzard(King) Q3 earnings results

Earnings can be summed up by three words, Candy Crush Asia.

I wonder how it must feel to be part of the Call of Duty-team and be the least profit contributing division within ATVI. The change has been dramatic.

In Q1 2016 revenues and margins where as follows:

  • Activision: $360m (28%)
  • Blizzard: $294m (29%)
  • King: $207m (32%)

In Q3 2016 revenues and margins where as follows:

  • Activision: $377m (33%)
  • Blizzard: $727m (44%)
  • King: $459m (30%)

YoY revenues grew 58%, the breakdown is as follows:

  • Americas +61%
  • EMEA +36%
  • Asia Pacific +113%

YoY revenues per platform breakdown is as follows:

  • Console 8%
  • PC 70%
  • Mobile +236%

85% of sales are digital, approx. 80% excluding King.

Full year guidance was $6.45bn and EPS of 1.92. That is a P/S of 4.8x  and PE around 21.7 (at $41.7 share price)

EA financial Q2 results

I don't want to spend to much time on EA results as I don't think there is that kind of >50% return opportunity in the stock which I see being offered by the smaller European studios. I also much prefer to invest in companies distributing over Steam - it makes it much easier to track sales.

I think their strategy to start releasing Battlefront and Battlefield every other year (i.e. Battlefront 2 in 2017, next Battlefield in 2018 and so on) seems smart. I can only hope Battlefront 2 will be better than Battlefront 1. Given that praise EA has received for the campaigns in Battlefield 1 and Titanfall 2 (and FIFA 17 for that matter) it will probably also contain a campaign and sell well. And than there is Mass Effect Andromeda to look forward to.

EA gave full year revenue guidance of 4,775mUSD. That would equal a P/S 5x, a very un-precise estimate but for comparison it is significantly higher than many others out there.

 

 

Take-Two Interactive results

Take-Two reported revenue growth of 21% to $420.2 million for the quarter. The company is doing well in expanding into new franchises outside GTA, both, NBA® 2K16,  and XCOM® 2 contributed significantly to growth.

Since the quarter ended Mafia III and Civilization VI has been released. 

The company has given guidance that the full year earnings (fiscal year ending i March 2017) will be in the range of $1.75 to $1.85 billion and net income in the range of $180 to $213 million. Using the lower end of those estimates the company is trading at P/S 2.2x and PE 21x. Compare that to EA which is trading at P/S 5x and PE 21x based on their full year 2017 guidance.

With Red Dead Redemption 2 from Take-Two coming 2017, Civilization VI being stuck at number 1 in Steam for several weeks since launch I am considering Take-Two as an attractive investment, but have not yet made up my mind to buy or not.

 

Will Star Citizen hurt Elite Dangerous?

My favorite game right now is Elite Dangerous. I love watching videos of Planet Coaster. I think David Braben is a genius. Frontier Developments is trading at an EBITDA multiple of 13.8x with Planet Coaster out in about two weeks. It is my favorite gaming company to be invested in.

BUT

Star Citizen. 

Cloud Imperium Games has raised over $100 million to develop the game, which is more than the market cap of Frontier. I just read that there were 7 full time artist involved in designing the interior of one of its latest (and largest) ships. The videos I have seen look absolutely incredible. Will Star Citizen eventually draw away players from Elite or will it just strengthen the genre and actually be positive for Elite in the same way many different FPS game can co-exist. Or maybe we end up in a FIFA / PES situation were both titles can thrive in a duopoly. 

Digital Bros - time to take profit

Digital Bros full year financial report (ending 30 June) reported an increase of EBITDA by 56% to €25 million - but most of that came from the one-off item of Payday rights being sold back to Starbreeze. Exuding the Payday rights leaves us with a very expensive stock and as it has gained handsomely so it is time to take profit.

Although I like the more artistic titles such as Abzû and Virginia, and Assetto Corsa will probably do very well, at the moment I will stand by and observe. 

CD Projekt Red praised by PC Gamer magazine

I picked up the latest issue of PC Gamer magazine and was happy to read about Gwent and an editorial praising CD Projekt Red. I have never been a fan of card games but I am well aware of its appeal. The last time I played something similar was the Star Wars Battlefront Base Commander, which was more fun than the actual game.

I love it when a gaming company shows this kind of free thinking and I am very happy to maintain a long position in the company and totally agree with the comments in the PC Gamer editorial:

 

 

““It’s unusual and interesting that a card game has become a vessel for new stories set in a universe that people love (The Witcher) - but I’ll never underestimate CD Projekt Red’s ability to surprise and delight players.””
— Samuel Roberts, Editor PC Gamer

Starbreeze shopping spree continues

The gaming company I love the most for its boldness, Starbreeze, continues it shopping spree as it buys Belgian Visual Effects (VFX) studio and PresenZ technology.

We have yet to see any significant bottom line impact of the recent acquisitions and although I am full of love for this company, they need to start getting back to basics and churning out full priced titles with multi-million copies sold to defend the valuation. 

Right now I feel the visibility of when the next full price title will hit Steam is low and my plan at the moment is to wait till after the Q3 report to get back in.