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Stillfront Group

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Stillfront Group: Positive news from Goodgames Studios, trimmed projections for Q4’17

Today Stillfront Group released user statistics for Q4’17. Compared to the previous quarter the number of DAU’s remained relatively flat, mostly due to reduced marketing effort on Siege Titan Wars. The engagement ratio increased significantly, which also likely have boosted the monetization ratio of the users. We trim our Q4 estimates slightly but make no changes to our valuation. The most interesting takeaway from the user figures was a sharp rise in active players for Goodgames Studios compared to Q3, which implies a continued successful launch of Big Farm: Mobile Harvest. We find that Stillfront is at the moment trading at roughly 16x their underlying EBIT level, compared to peers who trades at about 25x. Our Base-case valuation of 248 SEK per share implies an EV/EBIT of 20x.

During the fourth quarter of 2017, the average number of Monthly Active Users (MAU) amounted to 930 783 183, and Daily Active Users (DAU) was 229 692. Compared to Q3’17, the DAU remained relatively flat, and MAUs dropped by -19%. The reason for the MAU decrease was mainly less marketing effort for Siege Titan Wars, which was released during Q3 with an initial marketing push. The engagement ratio rose to 24%; we believe this will lead to a higher monetization of the users. 

In our projection we had estimated a net sales uptake of 18%, given the strong releases of War and Peace and Nida Harab 3, we think the released user data suggest that our projections for Q4 are a bit in the upper range. The ARPDAU will most likely increase due to a higher engagement ratio, but not 21% as our estimates suggest.

We have adjusted our net sales forecast by -10% for Q4, which also leads to a slightly lower adjusted EBITDA, before extraordinary cost for the acquisition of Goodgames Studios. The estimate revision does not have any material effect on our valuation of the Group. 

The most interesting takeaway from the user figures was the sharp rise in active players for Goodgames Studios compared to Q3, which implies a continued successful launch of Big Farm: Mobile Harvest. The MAUs rose by 43% compared to Q3’17. The lower DAU/MAU is expected due to the growth in users. 

We are positive to the acquisition of Goodgames Studios and believe the market is yet to grasp the growth possibilities and underlying income generating capabilities of the two companies’ combined. We expect that the Group will produce net sales of SEK 1503m and EBIT of SEK 307m during 2018, with increasing margins in the years after that, as the acquisition will create some additional costs during 2018. We argue that our EBIT projection for 2018 should be we viewed as an “annualized run-rate,” which means that this is current earnings power of the company. We can in that way say that the company is at the moment trading at roughly 16x their underlying EBIT level, compared to peers who trades at about 25x. Our valuation implies an EV/EBIT of 20x, which we believe is in no way too optimistic. We make no valuation adjustments due to the estimate revision, and our Base-case amounts to 248 SEK per share. 

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