We have made some changes in our estimates after the announcement of the publishing agreement with Epic Games. Regarding the pipeline of games, we still assume that the so-called “third project” published by Epic Games is in the Alan Wake universe.
However, we have changed our minds regarding the timing of “Project Vanguard” and the third project. We believe the third project is planned to be released by 2022. Remedy is referring to the game as a so-called AAA-game, which means a development budget of about EUR 30 million according to our estimates. Project Vanguard will be an online multiplayer experience which means content will be developed ongoing, most likely in so-called seasons, in line with industry standards. This means “only” the framework and the first season of content will have to be developed when the game is released to the public. The game will then evolve during the years to come in close collaboration with the community. We still expect Remedy will close a publishing agreement with Project Vanguard this year.
In the press release, Remedy disclosed that two games will be published by Epic Games in the same universe. The next major expansion for the current game Control will be released in H2 2020 and is called AWE. If we speculate on what to expect, we would guess the next expansion will merge the universe in Control with the universe in Alan Wake. The next “small scale” game published by Epic, will be a stand-alone Alan Wake game, maybe a prequel or something to the events in Control. And then in 2022, the major Alan Wake game is released by the end of the year. But all this, of course, is highly speculative from our side, we actually do not know anything. But we do know that one of the core values in Remedy’s DNA is storytelling, and this would be a creative way of mixing the two universes. We also know that the small-scale Alan Wake game “Alan Wake: American Nightmare” was a profitable project and Remedy likes to play it safe businesswise.
Our new estimates are based on our new assumptions that Project Vanguard will be the next major game released by Remedy. Our new estimates are mostly related to the fact that two of the new games will be fully funded by Epic Games. All personnel costs will be reported as personnel expenses, which means these costs will be paid by Epic Games and reported as revenue in our table.
Our estimated revenue for 2020 is close to EUR 40 million (EUR 35.7 million) with an EBIT of EUR 10.5 million (EUR 10.3 million). Remedy currently has four ongoing projects and is not expected to increase the headcount massively in the coming years. We therefore have increased cost of sales (CoS) significantly in our estimates for the coming years.
In 2021 we estimate revenues of EUR 48.95 million much in line with our previous estimate of EUR 46.5 million. EBIT is expected to be EUR 9.4 million (EUR 13.6 million). The lowered estimated EBIT is due to our new assumption that the third project will be released after Project Vanguard. If our speculation about a smaller scale Alan Wake game is correct and this game also is released in 2021, our estimates in our view could be quite conservative. But on the other hand, Project Vanguard could have a slow start as this is an unproven business model for Remedy.
Our estimated revenue in 2022 is EUR 61.3 million (EUR 47.9 million) and an EBIT of EUR 19.2 million (EUR 10.8 million). This estimate is based on the assumption that the major Alan Wake game published by Epic Games is released in 2022.
Due to our increased earnings estimates in 2022 and beyond related to the announced partnership agreement with Epic Games we have changed our valuation range. The deal does not only lower the overall financial risk significantly it also increases the upside potential due to the major financial resources from Epic Games.
Our new fair value range is EUR 11-32 per share (EUR 8-28) with a base case of EUR 22 per share (EUR 17).
And some comments about “Control”
Recently the number of accounts on Playstation 4 that have installed the game “Control” have been updated. By March 29, the number of “owners” is 780,000. The increase in total players on the Playstation is 330,000 in March. However, we believe that about half of the increased players come from the subscription service Playstation Now and will therefore not impact net sales for the game. But the game has also 370,000 monthly users during March, which means that a much larger user base could buy the recently launched expansion for Control.
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