Next Games: Showing some more positive signs - Evli Research
Profitability clear above expectations
Next Games reported better H1 results than we had expected. Revenue amounted to EUR 14.4m (Evli 13.8m) and the adj. operating profit to EUR 0.1m (Evli -2.4m). NML performed above our expectations due to ARPDAU improvements while Our World gross bookings continued to decline as DAU figures fell clearly, although the ARPDAU continued to improve. Our World was affected by COVID-19 restrictions on movement. With the improved profitability operating cash flow turned positive and the cash position excluding debt repayment remained effectively unchanged from the end of 2019.
Scaled new game launches set for the year-end
Next Games has clearly reevaluated its publishing strategy since the launch of Our World and new games will be brought to market and scaled over a longer time period. With Stranger Things expected to be launched in Q4/20 and Blade Runner Rogue still seeing major updates the impact of new games on 2020 revenue will likely be very limited and Next Games quite expectedly dropped its revenue guidance. Publishing operations EBITDA is expected to grow clearly in 2020 following lower marketing costs. 2021 figures are highly dependent on the new games to be launched and visibility as such is extremely low. With a larger share of employees working on live games profitability should improve but marketing costs should still limit near-term profitability potential.
SELL with a target price of EUR 1.2 (0.9)
The improved profitability and resulting halt to cash burn provide needed support for the company’s financial position. With the uncertainty from the dependency on new games, valuation in our view is still not justifiable. We adjust our target price to EUR 1.2 (0.9) and retain our SELL-rating.