Update – 12/07/2024

With H2 reporting not far away, it is as good as time as any to update my valuation. Taking into account recent guidance upgrades, I am forecasting the lower end of revenue guidance at 63m for FY24. With capex costs of around 2.5m, and cash flow from operating activities at a forecasted 21m for the year, this gives me a free cash flow of over 18m. Having made almost 9m NPAT in H1, I think 14m NPAT is a reasonable estimate (noting I expect them to hit the upper end of EBITDA guidance).

For the coming years, I am estimating free cash flow of 25m in FY25, increasing in 5m yearly increments until 2028. This suggests modest growth, something I think they will achieve as they mature, but a big 'hit' game could blow this forecast out of the water. That said, should growth stunt for whatever reason (not out of the question in an ever-changing gaming market), the existing market of over 300m will appear exxy.

With a discount rate of 10%, I reach a company valuation of 503m. Divide this by shares outstanding and I reach a share price of $1.20. 

Update - 03/02/2024

As discussed by @Strawman and @RobW already, the recent quarterly result was an absolute cracker. The thesis is coming along really nicely here -- WFH continues to provide the business with a stable revenue base in addition to a marketing tool, while we are starting to see IP dividends from a seriously good investment in DWTD. I maintain my view that this could well be a billion dollar + business in the future.

My previous valuation now looks conservative. I certainly don't want to extrapolate them spitting out 11m in cash flow for the next few quarters, but my 1m FCF estimation for this year is likely to be surpassed. I think 8m for the year is reasonable. In FY25, 26 and 27, I am increasing my FCF forecasts to 15m, 20m and 25m respectively. Perhaps this might be a little bullish, but I am comfortable with those assumptions. There is also the question mark around them working on a major title (the title of which is soon-to-be-announced) and the impact this will have on the bottom line.

With a 10% discount rate and the above assumptions, I reach a company value of 300m. Divide this by shares outstanding (408m) and I reach a valuation of 0.75c.

Update - 04/06/2023

I have flipped my DCF from revenue focused (don't we all miss those times?) to free cash flow. In hindsight, my initial valuation was generous and presumed the good times would keep on rollin'. I paid the price.

My revenue projection many months ago (35m for FY23) shouldn't be far away, but I suspect this will be closer to the 32m mark. Where they have really struggled is free cash flow: last year's 6.4m was much more respectable than the -6m they reported at H1. The company was rightly punished. Playside's share price is back at the levels when they first came to my attention. They remain tricky to value -- like lots of the discussion around them in recent weeks, revenue will be lumpy and unpredictable.

Management have subsequently gone back to the drawing board and reprioritised where they think their resources will be best spent. Q3 showed some improvement, primarily due to the success of the DWTD suite of games. I am looking for more of the same in Q4 and moving into FY24.

I remain of the opinion that Playside could be a sleeping giant. They are Australia's largest gaming studio and have moved into publishing which should expand revenue streams with potential for high ROI. Going forward, WFH should provide a stable base of revenue for Playside to pursue their original IP and publishing plans. That said, there are risks here too -- lumpy revenue, increasing competition and management execution to name a few.

I have made the following assumptions for FY23:

Revenue: 32.5m

FCF: -3m

Income: -2m

Going forward, I think they will return to cash flow positive in FY24 (forecasting a conservative 1m) before doubling that to 2m in FY25. A successful hit in this time would almost certainly result in multiple expansion well beyond this valuation -- here is hoping -- but in the meantime I will play it safe.

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FY21 free cash flow: -4.3m

FY21 revenue: 10.8m

FY22 projected revenue: 20m

FY23 projected revenue: 35m 

A possible sleeping giant, PlaySide has grown rapidly in the last 24 months. Based on current business activity – with the company recently signing its largest work-for-hire deal since listing (2K Games, 10m+ deal) – I think the company will continue to impress industry majors, gamers and shareholders long term.

Armed with a whopping 39m in cash, the company will invest in existing IP titles across mobile and PC, pursue additional licence opportunities and further scale the company’s work-for-hire business – with the latter establishing itself as a real golden egg in the last year. The cash will also fund the opening of new studios across Australia, commencing with a new studio on the Gold Coast in Q3 FY22, which will bring with it some handy tax incentives due to Qld’s 15% rebate incentive – in place to attract gaming studios and developers to the state. 

The successful release of Age of Darkness (which is currently on sale for those interested) and current work-for-hire agreements with Facebook Technologies and 2K Games, amongst others, provides endorsement of PlaySide’s development capabilities and raises its growing profile in the industry.

PlaySide will also establish a dedicated Metaverse R&D team to pursue opportunities in what is considered a rapidly evolving space. That said, I am mainly interested in watching how PlaySide develop and invest in its own IP titles, while working on AAA games for industry majors. This is where I think it will be the real winner over the next couple of years.

Using a 10% discount rate, which I have increased to account for the 'unknown' elements associated with gaming companies, I reach a company value of 414m. Divide this by shares outstanding and I reach a current valuation of 0.93c. 

Disc: Held