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#G5 Entertainment: Significantly undervalued

 

newlogoG5 Entertainments games for iOS have an estimated value of around USD 87m according to a recent compilation by Sensor Tower. This compares to the company’s current market cap of USD 35.1m and, even more relevant, enterprise value of USD 31.5m. The numbers show that only G5’s iOS games are worth roughly 2.8x the current enterprise value.

Sensor Tower is a platform that helps app developers get their apps downloaded more often by providing modules to track and improve the rankings of their apps for important app store search keywords. One of Sensor Tower’s features is the “Estimated App Worth”, which uses a proprietary algorithm to automatically estimate the value of any app, in real time. According to Sensor Tower, the algorithm takes into account different factors such as: user numbers (on a per country basis, multiplied by country app market value), revenue rankings in each country (normalized by country and category), user reviews on a per country basis, game vs. non-game, recent user growth compared to historical growth, and many more. The individual app values are than aggregated to compute an “Estimated Publisher Worth”. In the case of G5 Entertainment, it is not surprising that Secret Society is listed as the most valuable game with an estimated app worth of slightly more than USD 37m, followed by Virtual City Playground HD with an estimated app worth of around USD 4.7m.

We have screened through some of the most prominent publishers that are listed on the stock market and compared their current valuations with Sensor Tower’s “Estimated Publisher Worth” (EPW). You can see the result in the following graph:

SensorTowerAs you can see in the chart, G5 is by far the most undervalued publisher of the group. The French company Gameloft’s EPW is around 60% above its current enterprise value, in the case of Glu Mobile the upside is some 20%. King.com, Zynga and Electronic Arts all trade at a premium to their EPW. Once again, the EPW as reported by Sensor Tower is only for iOS games, however, all of the players mentioned above are also very present on Android and other platforms so the comparisons are still relevant. Electronic Arts, which stands our as the most overvalued player, is probably an exception as the company does also develop and publish games for PC and consoles.

If G5 Entertainment was to reduce its discount to the same level than Gameloft (i.e. a 60% upside to EPW), the company’s enterprise value would increase to USD 54.4m, or SEK 372m at current exchange rates. Adjusting for its net cash position, this implies a market cap of SEK 397m or SEK 45 per share. Currently, the stock is trading around SEK 27.

G5 Entertainment is one of the most undervalued mobile gaming developers and publishers out there.

Nordic Investor

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One Comment

  1. Adam August 21, 2014 Reply

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