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#G5 Entertainment: Solid Q1 2013 report; future looks bright

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Mobile gaming developer and publisher G5 Entertainment reported its Q1 2013 report this morning, slightly beating its preliminary numbers released in early April.

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Consolidated revenue for the period came in at 27 557 KSEK, up 58% compared to 17 388 KSEK for the same period of 2012. This is  compares to the the previously communicated forecast of 27 MSEK. EBIT adjusted for non-recurring items (related to the ongoing relisting process to Nasdaq OMX), amounted to SEK 9.4m, up 62% compared to 5 753 KSEK for the same period of 2012. The implied EBIT margin reached 34%, 100bp above the level recorded one year ago. Earnings per share for the period are 0.97 SEK. This result is in line with the previously communicated forecast.  During the period, the group had positive cash flow of 30 971 KSEK, which was boosted by the proceeds of the new share issue amounting to SEK 34m. Cash reserves on March 31st 2013 amounted to 44 336 KSEK.

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Regarding “The Secret Society”, G5’s hidden object free-to-play game released in November 2012, the company states that the game continued gaining the audience and improving monetization as G5 rolled out the updates for the game. The game increased average daily revenue through the period and became the highest grossing among G5 games. After the end of Q1 2013, The Secret Society, has received updates much anticipated by players, featuring new content and features, and addressing a number of known issues with the game. As a result, the game went up in Top Grossing ranks worldwide considerably, entering Top 50 Grossing Games in USA on iPad, and becoming the highest grossing game in G5’s portfolio on a continuous basis. G5 also states that it has 70 games (each for multiple platforms) in the development pipeline to be published in 2013 and 2014. This number also includes a number of free-to-play games to be released starting in 2013.

The big question mark remains on exactly how much money Secret Society is generating for G5 and its shareholders. With top grossing positions around #50 in the US, we have previously argued that it could be generating around SEK 10m (http://nordicinvestor.net/2013/04/28/g5-entertainment-secret-society-saves-party/). This numbers remains, however, highly theoretical and we would appreciated input from our readers on exactly how much a top 50 grossing position has generated for them on average.

G5 Entertainment and its CEO Vlad Suglobov do not want to give any more details around the topline contribution from Secret Society at this point. Nordic Investor put a couple of questions to Mr Suglobov following today’s results release:

Nordic Investor: Is there any chance that you can be a bit more specific about Secret Society’s impact on the numbers? You mention that it is the highest grossing game on a continuous basis. If you compare it with VCP’s importance back in q3 2012, is secret society more or less important than that for your overall performance? Can you give any hint on what a top 50 grossing rank in the US for iPad is worth in dollars ( on average)?

Vlad Suglobov: I cannot give you specific details on the revenue of The Secret Society. All I can say is that it’s been #1 in our Top10 on the site for quite a while and I can re-iterate that it’s been making more money than any other game for some period of time now. Although note that it was communicated in “after the end of the period” part of the report.

Nordic InvestorI saw you released your first game for windows 8 last week. Is the porting process to this platform very time consuming or can we expect several other releases within short?

 

Nordic Investor: Can you say some words about the contracting with new 3rd party developers: how is that proceeding? Would you say you sign increasingly more contracts or is the flow rather stable?

 

Nordic Investor: Can you say anything about if and when secret society will come to android?

Vlad Suglobov: We aim to release our games across all platforms we support, so follow our news for TSS Android information.

G5′s current valuation on the stock market is by no means in sync with its operational performance.  Even at an annual growth rate of “only” 60%, G5 can easily earn an EPS of around SEK 4 (excluding non-recurring items) in 2013, which would imply a 12-months forward PE-ratio of below 13x.  International companies with exposure to mobile gaming (but with much lower growth than G5) are currently trading at expected 2013 PE-ratios of around 25x (Gameloft) and 20x (Electronic Arts). Glu Mobile is not expected to make any profit this year but looking at their PE-ratio on 2014 estimates, the share is currently trading at a PE-ratio of 30x. Needless to say that we expect a signficant revaluation of the G5 Entertainment share once international investors can invest in the company when it is listed on Nasdaq OMX. What do you expect will happen when foreign analysts will start to include G5 in their peer group valuation tables? Gameloft is covered by several French investment banks while Glu Mobile, is covered by nine American investment banks and brokerages.

 

Nordic Investor

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