The Q1 2012 reporting season is coming to an end but for us at Nordic Investor the best is yet to come. On Tuesday, May 15th, our top-pick G5 Entertainment is due to open its books.
As usual, the actual result will be less of a surprise as the company has already communicated in its mid-quarter update on April 3rd that: ““For the period of January-March 2012, the management revises the forecast to 17.2 MKr revenue (up 8% compared to the previous forecast of 16 MKr), and 5.6 MKr operating result (up 12% compared to the previous forecast of 5 MKr). This updated forecast corresponds to achieving 80% revenue growth and 43% operating result growth compared to the same period of 2011. “ The full year target of revenues of SEK 87m and an EPS of 3.20 was left untouched on April 3rd and we would be surprised that G5’s conservative management will raise it next Tuesday, despite the fact that the developments so far in 2012 are very encouraging and we at Nordic Investor believe that G5 will be able to exceed its 2012 targets.
Gaining ground in a growing market
It will be interesting to see to what extend management will comment on the success of Virtual City 2 (see previous Nordic Investor “ranking checks”), which was released in early April for both iOS and Android and has helped both with its own absolute performance but also cross-selling wise to boost G5’s rankings in the top-grossing charts around the world. With the help of a co-operation partner, Nordic Investor is screening the biggest top grossing rankings for both iOS markets and Google Play and the trends in Q2 so far are very encouraging. In the iOS markets of Australia, Canada, China, France, Germany, Italy, Japan, Netherlands, Russia, South Korea, Spain, Sweden, UK and USA, G5 Entertainment started Q1 2012 with around in total 65 games among the top 100 top grossing charts in each of the countries. As of this morning, this amount had increased to 108:
Looking at the Google Play rankings so far in Q2, the number of G5 games among the top 100 charts in the screened markets has increased from 1 to 11, among the top 200 from 13 to 38, among the top 300 from 28 to 64, among the top 400 from 41 to 91 and among the top 504 from 51 to 99. So G5 Entertainment is actually gaining ground in the smartphone and tablet market that by itself is growing dramatically. What a combination that is!
A separate phenomenon is the success of G5 Entertainment’s freemium game Virtual City Playground for the Mac platform, following a recent update. The Mac platform as such is not that important in monetary terms but be sure that top 10 rankings, amongst others in the USA, do add up to some handsome dollars as well. This morning Virtual City Playground was among the top 10 top grossing apps in 12 major countries:
On Tuesday, any comments regarding new freemium games would be highly appreciated as this form of monetization has proven to be superior for many developers. CEO Vlad Suglobov indicated in a recent Stockholm investor meeting that G5 plans to publish a further freemium title in the not too far future. We would also be interested to get an update on the “Build-alot-franchise”. In October 2011, G5 announced a co-operation with HipSoft to bring their “Build-alot-series” to smartphones and tablets but no further details have been communicated ever since. Potentially, this could be a candidate for a freemium-model which would explain why the porting process is taking such a long time.
We believe that G5 Entertainment is on track to deliver on its FY 2012 and chances are good they will even exceed them. Soon, 5 months of 2012 have passed and the company is so far delivering ahead of schedule and its own expectations, as indicated by its increase of guidance for Q1 2012. The download rankings in Q2 are highly in favour of a continued success story and our firm believe is that the market will sooner or later revalue the G5 share. At a PE-ratio of 12.7x forecast 2012 earnings, it stands out as extra-ordinarily cheap given its track record and continued growth prospects.