Beyond Frames: Promising pipeline and healthy revenues

Research Update

2024-05-28

12:57

Beyond Frames currently has six games in production. Over the next 13 months, two games from its most successful partner Combat Waffle are expected. We also anticipate that at least one game will be released during this period from their internal studio Cortopia. A strong revenue beat and a more visible pipeline, make us increase our top-line estimates for 2024 and 2025.

Tomas Otterbeck

John Westborg

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Q1-comment

Beyond Frames reported sales that were twice as high as our expectations for the quarter. EBIT was SEK5 higher than our estimate. We believe that direct game sales, driven by the publishing title "Ghost of Tabor," came in higher than expected, combined with revenues linked to their received development fees, which were also higher than expected.

"Upping the game"

Given that revenue were approximately 100% above our estimates for the quarter, we have revised our top-line projections for the full year. The quarter's performance was bolstered by the full launch of "Ghost of Tabor" on the Meta Quest Store. For the full year of 2024, we have increased our sales forecast to SEK202m, up from the previous estimate of SEK154m. With improved visibility regarding the game pipeline in 2025, including the release of 1-2 games from Combat Waffle, we have increased our sales estimate to SEK240m (previously SEK167m).

Increased base case

Beyond Frames is a very small company in an obvious growth phase so it is hard to do a good peer comparison on profitability metrics such as EBITDA and EBIT. Compared to internation peers, when looking at the median, Beyond Frames looks relatively cheap looking att estimates for 2025 and 2026. However, in a Nordic peer-group the valuation mutiples is relatively high. Considering the high growth in Beyond Frames this is fair in our opinion.

We raise our fair value range to SEK13-52 per share (SEK13-46 per share) with a base case of SEK30 per share (SEK28 per share).

Key financials

SEKm	2022	2023	2024e	2025e	2026e
Revenues	24.9	138.5	202.4	240.8	269.2
Revenue Growth	4.3%	457%	46.2%	19.0%	11.8%
EBITDA	-15.0	9.7	20.5	52.6	61.9
EBIT	-22.6	-6.7	-3.9	21.4	27.0
EBIT Margin	-91.3%	-4.9%	-1.9%	8.9%	10.0%
Net Income	-23.2	-7.8	-3.4	16.9	21.3
EV/Sales	4.8	2.5	1.1	0.7	0.4
EV/EBIT	-5.3	-52.0	-92.4	15.9	11.9

Investment thesis

Case

Attractive exposure towards the growing VR industry

Beyond Frames is a game developer and publisher niched towards the VR market, an area still in its infancy but expected to grow by a CAGR of 18 percent until 2028, driven by hardware and software investments. Moreover, VR games tend to have a long life-span and lower development budgets than traditional premium PC/console games. This, in combination with their solely digital distribution, brings high operating margins and a healthy return on investments. Beyond Frames aims to expand its game portfolio tenfold.

Evidence

Tech giants entering the field

Meta, the current market leader in the VR space, spent more than USD 15bn in 2023 on capitalizing on the market opportunities. Its VR headset product line, Oculus Quest , has sold ~20 million units. In addition, Sony released its PSVR2 in 2023, and several other major tech players are investing in the field such as Apple. This trend is an additional catalyst for expanding the user base.

Challenge

Commercialization

The VR industry is still in its infancy and remains dependent on large hardware investments to make VR headsets more affordable to the wider audience. There are risks that the commercialization of VR headsets will take longer than expected, which would naturally affect the global user base. Additionally, VR headsets could be used for other functions, particularly in several work applications and in education. There is no guarantee of gaming as the killer application for VR headsets.

Valuation

Superior growth

The success in Beyond Frames publishing business (read Ghost of Tabor) has secured a valuation that is not that depressed as in its Nordic peer group. Beyond Frames is also a “pure play” with a clear focus on VR and no major acquisitions during the last years. The company is debt-free, which also is an important parameter these days.

Disclosures and disclaimers

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