in Mobile Gaming

#G5 Entertainment: Highlights from Stockholm investor meetings

newlogoG5 Entertainment’s CEO Vlad Suglobov is currently in Stockholm, meeting with both private as well as institutional investors.

His message is assuring as ever and Mr Suglobov is steering G5 towards the mid-term goal of SEK 300m in revenues. The 3-year CAGR for revenues has been 103.6% and management is confident to keep growth levels at historic averages. Further trademarks of the company are a high margin structure with long-tail revenue stream, as well as a significant operating leverage and a high cash conversion.

Highlights in today’s presentation were in our opinion:

  • Continued strong growth in smartphone/table market expected (Smartphones CAGR 19% up until 2016, global tablet shipments expected to grow by 33% p.a. until 2016)
  • Growth in mobile market is leading to an explosion of the app market (set to grow at CAGR of 76% from 2010 until 2015 (to USD 37.5bn); number of downloaded apps to grow by 345% from 2012 to 2015). Growth in the mobile app market is mainly driven by gaming apps
  • Recently announced over 100 million downloads, more than 300,000 followers on Facebook and more than 400,000 people receiving the G5 newsletter
  • Outlook for Q1 2013 reiterated, i.e. Q1 is expected to be a record quarter with y-o-y growth rates in-line with historical averages
  • Impressive long-tail sales pattern for G5 games. Supermarket Mania is in its 5th year of making money, having been completely depreciated after two years already
  • More focus on Free-to-Play (F2P) games going forward: no split is disclosed right now as to how much of sales is coming from the F2P games Virtual City Playground, Doomsday Preppers and Secret Society, however, that ratio is increasing and G5 wants to publish more F2P games.
  • G5 has started to work with paid ads to push its F2P game Secret Society in the US market. This turned out to be really successful and the games has remained at high top grossing rankings even at the end of that trial period. The company intends to continue to pursue this approach and fine-tune it.
  • G5 has developed a system of measuring the success of its F2P games, i.e. looking at different analytical tools to determine what players are willing to pay for and at what stage of a game etc.
  • G5 will strengthen its Board ahead of the relisting to Nasdaq OMX with a person with previous Board experience from a listed company. G5 will also hire a CFO who will be based in Stockholm
  • Only limited hiring this year; around 10-15 persons max.
  • Asked about the potential entry into the segment of real-money gambling (as Glu Mobile has done recently), Mr Suglobov did not want to comment specifically but noted that the demographic of a typical G5 gamer is the same as the demographic of a typical casino game player. We got the impression that it is not unlikely that G5 will publish a casino-style game with virtual currency sometime in the future.

 Conclusion:

G5 impresses with a goal-oriented execution in a fast growing market. If the company manages to deliver on its targets, an EPS of around SEK 4.30 is realistic for 2013 and around SEK 8 for 2014. Applying multiples in-line with an international peer-group this implies fair share price levels of SEK 88 – 148. Listening to Mr Suglobov, we do believe that the likelihood of G5 Entertainment achieving its targets is rather high and the track-record of doing so is impressive.

G5peervaluation

Nordic Investor

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