Beyond Frames: Two significant game launches in H2

Research Update

2024-08-27

08:27

At the end of September Beyond Frames internal studio will release “Escaping Wonderland” based on “Alice in Wonderland” the sequel to its highly profitable game “Down the Rabbit Hole”. And later this its most successful development partner “Combat Waffle” will launch its multiplayer survival game called “Grim” in open alpha.

Tomas Otterbeck

John Westborg

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Weak stock performance, but insiders seem confident about the future

Shares in Beyond Frames have plummeted 45% since the last quarterly report. We believe this is a rather strange reaction. Sure, the quarterly report was weaker than our expectations, but otherwise, nothing fundamentally has happened in the company. In late July, its CEO also acquired 300 000 shares in the company, at a price of SEK18 per share, making him the eighth largest shareholder in the company. The CEO only had options/warrants before, which make the SEK5.4m even more significant. After the Q2 report the new CFO and the new chairman bought shares for around SEK100k.

A solid pipeline of games ensures growth path

The “Ghost of Tabor” developer plans to release two games before the end of H1 2025. And two fully financed game projects that are internally developed will be released before H1 2026. Beyond Frames has also tail-winds from the VR market as a whole, where industry leader Meta grow its Reality Labs business by 28% year-over-year according to its latest quarterly report.

Estimate changes and valuation

A somewhat softer sales momentum in Q2 makes us lower our sales projections for H2 2024.With a more visible game pipeline we however feel more confident in our estimates for 2025 and 2026. With lower expected profitability in 2024 and 2025 we have changed our base case to SEK28 per share (SEK30) with an fair value range of SEK13 – SEK46 per share (SEK13-SEK52). For a VR focused growth company, Beyond Frames has an attractive valuation in our opinion compared to its peer group.

Key financials

SEKm	2022	2023	2024e	2025e	2026e
Revenues	24.9	138.5	189.3	225.1	257.9
Revenue Growth	4.3%	457%	36.7%	18.9%	14.6%
EBITDA	-15.0	9.7	14.8	40.5	57.7
EBIT	-22.6	-6.7	-9.6	11.3	24.2
EBIT Margin	-91.3%	-4.9%	-5.1%	5.0%	9.4%
Net Income	-23.2	-7.8	-11.1	8.9	19.1
EV/Sales	4.8	2.5	1.2	0.7	0.5
EV/EBIT	-5.3	-52.0	-38.3	31.5	14.0

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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