Star Vault is the maker of Mortal Online, a first-person fantasy Massively Multiplayer Online Role-Playing Game (MMORPG), which has been launched in 2010. What does make the case interesting in our eyes is the fact that some 70,000 hardcore games voted for Mortal Online to be included on “Steam”, one of the largest game platforms in the world. It is estimated that there are over 65 million Steam accounts and around 75% of all digital games purchased for the PC are through Steam. In January 2013, Steam surpassed over 6.6m concurrent players.
Mortal Online is a Free2Play game where the gamer can pay a monthly subscription fee of EUR 14 in order to get access to the full version. Gamers can also buy items in the game and make donations.
The Star Vault share is currently trading around SEK 0,70, valuing the company at a market value of SEK 34,9m. Considering a net cash position of around SEK 0,3, the current Enterprise value is around SEK 34,6m. And this is where it becomes interesting. Star Vault is currently working hard to get Mortal Online ready for the Steam listing. The company has recently made a directed share issue to get in SEK 2.6m which are used to improve the game. No exact date for the Steam launch has been announced yet.
Let’s crunch some numbers to see whether the market has already priced in a successful Steam launch of Mortal Online:
The first question we ask ourselves is how many paying players has the market prized in at current share price levels? Looking at international listed gaming companies such as Electronic Arts, Activision, Gameloft and Glu Mobile we note that they are trading at a EV/Sales of >2x. Assuming the same EV/Sales ratio for Star Vault, this would imply a revenue level of SEK 17,3m. As always, we want to be conservative in our calculations so we assume that Star Vault “only” gets SEK 50 from each player per month, or SEK 600 per year. This would mean that 28833 games would need to play Mortal Online in order to reach a revenue level of SEK 17,3m. If the gamers were to pay SEK 60 per month to Star Vault, the number of needed players drops to 24028 and so on. So we note that 70000 gamers really want Mortal Online to be included on Steam, which then opens up a whole new market and the market currently prices in some 28000 games paying SEK 50 per month.
The next question is then how much could Star Vault potentially reach in revenues if more people were to play the game? Again, we are assuming that each gamer will pay SEK 50 per month, or SEK 600 per year. Assuming that 50% of all the people who voted for Mortal Online will turn into paying customers, i.e. 35000, this would imply a revenue level of SEK 21m for Star Vault. If we assume that actually all of the people who voted for Mortal Online will also be willing to be pay for it, i.e. 70000, this would imply a revenue level of SEK 42m. If we assume that each gamer is actually willing to pay SEK 60 per month, or SEK 720 per year, these numbers jump to SEK 25,2m and SEK 50,4m respectively. Given the far reach of Steam, we cannot see any obvious reason why eventually there should not be more than 70000 people willing to pay for the game.
The final question then is how much is the upside to current share price levels considering the revenue scenarios just mentioned? We continue to apply a EV/Sales ratio of 2x. Obviously, the EV/Sales multiple the market is willing to pay for any company will be related to the company’s margins, but the 2x is close enough to the average level for other gaming companies. If we apply the EV/Sales ratio of 2x on the revenue level of SEK 21m, we ultimately get a market cap of SEK 42,3m, implying an upside of 21%. If we apply the EV/Sales ratio of 2x on the revenue level of SEK 42m, we ultimately get a market cap of SEK 84,3m, implying an upside of 142%. If we apply the EV/Sales ratio of 2x on the revenue level of SEK 25,2m, we ultimately get a market cap of SEK 50,7m, implying an upside of 45%. If we apply the EV/Sales ratio of 2x on the revenue level of SEK 50,4m, we ultimately get a market cap of SEK 101,1m, implying an upside of 190%.
Conclusion: We see Star Vault as a high risk speculative case, which potentially can have massive upside. We expect the final announcement of the Steam launch to be a positive catalyst for the share price.
Disclaimer: Nordic Investor does hold shares in Star Vault
All numbers are shown in the following chart: