Beyond Frames: Well-equipped for growth
Tomas Otterbeck answers the top questions on this Research Update
Research Update
2024-11-25
07:57
Analyst Q&A
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Ends in 2 days and 7 hours
Tomas Otterbeck will answer the top questions on this Research Update
Ends in 2 days and 7 hours
Redeye update its projections and valuation after Beyond Frames Q3 result. Our sales and earnings projections for 2025-2026 remain largely unchanged. The stock’s weak momentum has persisted since our latest research update, likely driven by two consecutive quarters of negative year-over-year growth. Despite this, Beyond Frames appears attractively valued for a company in a high-growth phase.
Tomas Otterbeck
John Westborg
Slightly softer sales than expected
Beyond Frames reported net sales 8% below Redeye's estimate. However, EBIT aligned with expectations due to higher capitalized development costs. The game Ghost of Tabor continues to generate recurring revenue, while the newly launched Escaping Wonderlands has received great reviews on the Meta Quest store. The Alice in Wonderland sequel has outperformed its predecessor in terms of revenue during its initial launch period.
"Grim" is a key catalyst in H1 2025
Our sales and earnings projections for 2025-2026 remain largely unchanged. However, we have slightly reduced our Q4 sales forecast due to a lower estimated revenue base for Ghost of Tabor. The public alpha release of Grim, scheduled for December, is expected to be an important near-term driver. That said, with the game's sales opportunity emerging later in Q4, we have adopted a more cautious short-term outlook.
Short-term uncertainty presents an opportunity
The stock’s weak momentum has persisted since our latest research update, likely driven by two consecutive quarters of negative year-over-year growth. Despite this, Beyond Frames appears attractively valued for a company in a high-growth phase, provided our EBIT projections for 2026 roughly hold. The estimated EV/EBIT ratio for 2026 is 7.3x, offering a compelling opportunity for investors.
Key financials
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Revenues | 24.9 | 138.5 | 182.3 | 220.1 | 251.9 |
| Revenue Growth | 4.3% | 457% | 31.6% | 20.7% | 14.5% |
| EBITDA | -15.0 | 9.7 | 13.3 | 39.2 | 55.8 |
| EBIT | -22.6 | -6.7 | -10.6 | 10.7 | 23.1 |
| EBIT Margin | -91.3% | -4.9% | -5.8% | 4.9% | 9.2% |
| Net Income | -23.2 | -7.8 | -8.7 | 8.4 | 18.2 |
| EV/Sales | 4.8 | 2.5 | 1.2 | 0.7 | 0.5 |
| EV/EBIT | -5.3 | -52.0 | -34.4 | 33.2 | 14.6 |
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.
Challenge
Concentration risk
Given Beyond Frames relatively small game portfolio, further earnings growth is strongly correlated with the success of coming game releases. However, should those releases fail to meet market expectations, there are clear risks of drops in share price. In 2024, the sales momentum in the publishing title "Ghost of Tabor" has been the main driver of sales.
Valuation
Strong growth
Beyond Frames is a "pure play" stock with a dedicated focus on VR. The company has not made any significant acquisitions in recent years, which makes the balance sheet clean. The company is also debt-free, which is a particularly important factor in the current market environment. For a company in a high-growth phase, Beyond Frames seems attractively valued if our EBIT projections for 2026 are realized. The EV/EBIT ratio for 2026 is estimated to be around 7x.
Disclosures and disclaimers