#Operating Update & FY25 Guidance

The early success of Kill Knight is positive.

But the lowered EBITDA guidance and significant cash burn expected in FY25 indicate that the company is entering a pretty crucial time.

If major titles perform well, PlaySide is positioned for strong growth.

Looks like they're betting heavily on the success of its upcoming games which we'll have to keep a close eye on, particularly Game of Thrones.....

Coming up to the release of Playsides full year results I thought it would be worth starting to track the titles in production again. As Playside moves into larger titles with larger production budgets, managing the production timeline will be an important factor on the cost side.

Playside released their financials this morning. Some impressive numbers showing the growing opportunity. How did the market respond? Dropped down to 55-55.5c in the first 30min before rebounding.

PLAYSIDE STUDIOS LIMITED (ASX:PLY) - Ann: Shaw & Partners Tech Conference Presentation, page-1 - HotCopper | ASX Share Prices, Stock Market & Share Trading Forum

Overview • We are the largest games development studio in Australia • 330 staff • ~260 staff working from three offices (two in Melbourne, one on the Gold Coast) • Remaining staff working remotely across Australia, NZ and the UK • 240+ artists, engineers and designers • Single-digit attrition rate • Very small executive/management layer • Almost all of our staff are actively contributing to the development of games • Average management (GM level+) tenure is over six years • A$360m market cap • Majority-owned by three co-founders (49%) and staff (~5

playside and WB have announced that the 2 game contract they signed in december will be based around Game of thrones! Doesnt come much bigger than that. Exciting times ahead. This is a multi year collaboration

H1 Review (Trying to get this out before the Q3 update)

The Good

• QoQ revenue growth of 34% to $20.7m and $36.2m for the half. Annualised out to $72.4m which is above the increased guidance range of $60m-65m. Original IP increased 68% QoQ to 11.1m. This is likely going to be lower in future quarters based on the FY24 guidance.

• Quarterly EBITDA of $8.0m which is ~39% of revenue. Guidance for FY24 is $11-$13m on $60m which works out at ~ 20% of revenue.
• Even though staff expenses have increased, overall they have decreased as an % of overall revenue.

• Increase in cash position to$38.3m which is allowing playside to take on larger projects like the WB IP deal.

• Playside Publishing now has three titles in the works with the first scheduled for release this FY

The Not So Good

• Both Age of Darkness and Beanland appear to be on limited resources to reach a final release, with no target dates for either in the recent updates. This has been discussed in other straws, but so far, Playside has not had a commercially successful PC release and has relied heavily on DWTD franchise.
• Kill Knight release trailer meant to be released in Feb. Still no updates.

Watch Status: 

Valuation Status:

Increase to bull case. Valuation upgrade.

What To Watch

• New mobile title coming out currently in early release -  Wedding Planner - Match 3 Title (Target 4-6 Titles per year)

• Warner Bros IP to be announced in Q4
• Thrive - HLTC - Release target Q4 (Publishing)
• Dynasty of the Sands - Release target H1FY25 (Publishing)
• Project Phoenix announced as Kill Knight - Release targeted for H1FY25
• DWTD Netflix Title - Dumb Ways To Survive

https://www.youtube.com/watch?v=E4cT_PRRDRo

• DWTD PC / Console title - CY25
• Mouse - CY25 (Publishing)
• Updates on Beanland and Age of Darkness

My two cents worth.

Playside did not invent NFT's in gaming. They created something which generated AUD 8million of Revenue in a short space of time and good on them for achieving that outcome. It is easy to forget the volatility in Crypto at that time, probably the main reason they have avoided this going forward. Suspect most that parted with money at the time saw it as another way to get involved in Crypto. The idea that the Company should reimburse these people is ludicrous. Got to question why after two years, people now emerge blaming the Company. Current Crypto prices ! Oh, by the way, Beanland is still alive and well.

I only judge the Company on what it has achieved since listing. Stellar performance and investors have shared in the spoils. Already a 2+ bagger in 3 yrs. Sakkas is one smart cookie and their strategy is likely to continue to deliver for us investors going forward.

RobW

There’s been quite a bit of negative sentiment on the Beanland discord channel recently and rightly so after the long delays and constant changes to the development road map.

Whilst it is unlikely to have any major impact to the company overall, it isn’t a great look for a listed company to make a cash grab and then effectively deliver nothing to those that backed the project as they weren’t small amounts of money for the bean NFTs.

It also leads into another risk I see with Playside leading into their big IP console titles, which is their ability to close out projects in announced timeframes. This is likely due to their WFH contracts taking precedence over their own titles at this stage of the company growth, but Age of Darkness has been having similar issues in reaching final release.

Small exchange from discord below:

A rather significant (9.8% of the company to be exact) sell down by the 3 largest shareholders announced this morning. The price was $0.75 so also quite a large drop from their last close of $0.84. It will be interesting how the market reacts to this news. I'll be also interested to see who the new shareholders are too.

@Strawman. Thanks for setting up the meeting with Gerry. The depth of strategic thinking and his willingness to openly share this is quite rare. An increasing number of irons in the fire point to continued momentum going forward.

As I have said previously, he has a 360 degree view of the gaming market, new technologies in Gaming, an intimate knowledge of Playside capability as a business and together with his passion and vision, will most likely navigate a course which proves to be very lucrative for investors. When you talk investing in gaming, RISK is always at the forefront of peoples's minds. Believe we are in very safe hands and being perfectly aligned for current / future opportunity.

For those that missed the meeting, worth a watch IMO.

RobW

Nice to see a 20%-odd jump in the share price today, which takes shares in Playside back to an 18 month high (and double where it was in late Feb last year). Talk about a wild ride.

The catalyst of course was the latest Q2 result (see here), which delivered record revenue across all segments -- about double the previous corresponding quarter, and 33% from the preceding quarter.

Also very nice to see positive EBITDA, which came in at double the Sept quarter read, as well as a operating cash inflow of $11.2m which takes the cash balance to just over $38m (about 15% of the current market cap).

Playside even increased FY revenue guidance from $55-60m to $60-65m; about a 9% lift at the midpoints and will be a 63% improvement on the prior year. EBITDA is expected to be flat in the second half due to a first half skew and increased headcount (needed to support future growth) but is expected to be $11-13m for FY24.

Accounting for today's jump, that puts Playside on a forward EV/EBITDA ratio of ~21x. Doesn't seem excessive given the growth and runway, especially as with a healthy balance sheet and free cash flow generation.

Held.

Playside has struck a multi-game license with Warner Brothers. They'll produce two games based on Warner Brothers IP (I believe they own the rights to DC Universe, Harry Potter, Looney Tunes, Game of thrones, among others) -- we'll find out exactly what brands the games will be based on in the next 6 months or so. (I'm personally gunning for a Batman title!)

Playside will pay a license fee and provide Warner Bros with royalty payments based on the revenue they generate from the titles.

No specific financials mentioned, and the games could be a total flop, but it is encouraging that they are striking deals with such big name counterparties.

ASX announcement here

Held.

Some interesting comments at the AGM today (I wasn't there, just reading the ASX release)

The key point being an upgrade to FY24 revenue guidance, which they lifted from $50-55m to $55-60m. At the midpoint, that's a 50% lift on FY23.

Q1FY24

The Good

• QoQ revenue growth of 22% to $15.5m. Annualised this is above the $50-$55m revenue guidance provided at the end of FY23. Revenue growth was strongest in the original IP division, with a new record quarter of $6.6m. This was just shy of my last quarters estimate.

• Original IP revenue increase is likely driven by the milestone payments for the DWTD Netflix and Meta titles as following the mobile downloads there hasn’t been any significant changes across the catalogue.

• Staff costs look to be levelling out from the recent growth phase. If playside can continue to generate growing IP revenues, this is where operating leverage will come into play, otherwise further staff growth may be required to continue to grow the WFH revenue streams.

• Only slight increases in advertising expenses and still significantly down as a proportion of IP revenues. 

• Cash position remains strong at $31.7m

The Not So Good

• Age of Darkness release date still TBC. It looks like this is waiting for multiplayer to be locked down, however updates from the Playside team in the Discord channel indicate that this has been a challenge. The longer this is in pre-release, the more development costs need to be recouped.

What Status: 

What To Watch

• Expect Q2 to be cash flow and EBITDA positive. Track EBITDA margin for future valuation estimates.
• New deal announcements from recent games conferences. As @Rocket6 has stated, this may lead into the AAA title announcement and start to show up as increased investing cashflows.

• Original IP revenue lumpiness. Given the milestone payments for the DTWD title development, these have the potential to create lumpy IP revenues throughout FY24 until the titles are released.

• Pipeline Targets

• Next release - Beanland (Q2FY24). I don’t expect any significant revenue contributions from beanland given it will be free-to-play. There is a very small chance that it could spark some interest in the Beans NFTs again. I don't really attribute any value to the Web 3.0 segment of the business.

NFT Sales since launch (Volume & Price)

• Project Phoenix title announcement.
• Potential increase in capitalised development costs
• Third publishing title announcement
• New mobile title

Inside Ownership       Ordinary Shares    % PLY Issued          Net Value at $0.38

Cristiano Nicolli             679,019                        0.28%                          $258K

Gerry Sakkas                 81,189,142                   19.79%                       $30.8m

Mark Goulopoulos        79,300,000                   19.50%                         $30.1m

Aaron Pasias                 79,250,000                   19.49%                       $30.1m

Benn Skender               650,000                        ~                                  $247K

Total                            241,068,161                59.17%                           $91.6m

*Total Market Cap today at $0.36 is $154.8m

Director Buying

Mark Goulopoulos

·      3 March 2023

Indirect           68,333 Shares price $0.30 per share ($20,499.90)

·      1 March 2023

·      Indirect           65,000 Shares price $0.3196 per share ($20,775)

Aaron Pasias 

·      2 March 2023

Indirect           59,223 Shares price $0.31 per share ($18,359.13)

Market not that impressed with Playside's results. They seem ok to me:

• Revenue up 90% (ex NFT sale)
• EBITDA and Cash flow positive in second half
• Well funded, with $32m in cash
• Guiding for (roughly) 37% growth in revenue for FY24

Revenue growth has been pretty strong historically, as they highlight here:

Shares now on a P/S of about 3.5x

Let's see what Gerry says later today when we catch up with him.

Announcement

The Good

• Record quarterly revenue of $12.7m, demonstrating ongoing growth especially in the WFH business. Original IP revenues continue to remain strong, likely driven by the DWTD IP.

• Another cash flow positive quarter, again driven by low advertising revenue. I thought that this would have increased this quarter, however it has moved in the other direction. I still don’t think this level of expenditure can be maintained, however it is a positive indication that Playside isn’t having to resort to buying revenue.

• Dumb Ways To Die IP continues to drive business for Playside with a title for the Meta Quest in development. This title includes development fees and ongoing net revenue share. Both the Netflix and Meta deals include licensing fees to be paid out during development. Mobile downloads have also remained high from the peak.

• $50m to $55m revenue guidance provided for FY24 which is at least a 30% increase on the $38.4m for FY23. This shows confidence from management 
• Strong cash position of $32.2m. With the company moving into consistent positive cashflow territory this leaves a very strong capital position for future business development and larger title development budgets.

The Not So Good

• Staff costs continue to rise. This is to be expected to be able to service the increased WFH contracts as long as staff to revenue ratio doesn’t increase beyond historical levels

• World Boss' full release at the end of June didn’t do anything to boost the player numbers. At this point in time it would be reasonable to assume that so far World Boss has been commercially unsuccessful.

• Mobile titles (ex DWTD) downloads on the decline

What Status: Positive

What To Watch

• How the gaming tax offset is reported. I’m not sure how the rebate is handled by the ATO but potentially a substantial payment  in Q1FY24? Are WFH expenses counted within the rebate?
• Based on the guidance numbers provided from the vantage point conference slides can expect Q1 WFH revenue to stay within the $7m to $8m range
• AoD release date and ongoing downloads

• Dynasty of the Sands updates and progress

• News on new PC / Console title - Project Phoenix
• New mobile titles planned in FY24. The first of these to come out is Dumb Ways To Climb. Currently ranked number 64 in Action on the app store. Once again this is a re-skin of other similar games on the market, but its probably a good time to be cashing in on the DWTD IP

This one slipped past me yesterday -- Meta (Facebook parent) has engaged Playside to develop a VR title for its Quest device, based on the Dumb Ways To Die (DWTD) IP.

Playside will get a license fee as well as periodic development payments. They also get a share of net revenues in perpetuity.

They expect launch will take 18 months.

As a reminder, they bought the rights for DWTD for just $2.25m in 2021. They already made $9m just from NFT sales!! (yeah, a terrible "investment" for those that bought them, but it was great for PLY). Anyway, what a great purchase that's turned out to be.

This news has led Playside to guide for FY24 revenue of $50-55m. They recently told investors to expect $35m in revenue for FY23.

The top line growth has really been remarkable:

Also worth noting they have $30m in cash and were cash flow positive in the March quarter.

Yes, shares are on something like 4x sales. But maybe that's not so high given the growth and scalability of the business.

See full announcement here

Full Article Here

Article from ABC News today talking about the games industry in Australia and the rebates available from governments to promote the industry and new impact of the new Digital Games Tax Offset that was effective from 1 July 2022.

Source: ABC news

So far this year, Playside have spent $16.4m on staff, and will likely land somewhere in the $22m to $23m range for the full year

Based on the legislation expenditure up to $67m is claimable, so Playside still has quite a large window of growth to be eligible for these rebates.

Source: ATO

What I did find valuable is this comment here about exchange rate risks for the WFH business, which although fairly obvious, I hadn't considered before. Although Playside isn't owned by a US company, the cost effectiveness of outsourcing is still impacted.

Playside have added a new mobile title to their catalogue this month. Find It: Scavenger Hunt which is free to play so will rely on the normal model of advertising and in game purchases. The game itself is pretty polished in the artwork and seems like a relaxing time filler.

But wait, what's that, this game is basically identical to many others in the store already all using some combination of Find and Scavenger in the title or description.

This is one of the main areas I'm not sure what to think of Playside's business model. I know Gerry has talked in the past of using data better than competitors to optimise their traffic and conversions, but without knowing the development and ongoing support costs of a title like this, its hard to see where the value is in competing is a crowded space like this. For me it also detracts from the image of Playside as a studio.

I will add this to my download tracking with the others in the catalogue, to try get an indication of how this performs in comparison to their other titles

My deep dive this month is on them : https://goforgrowthco.substack.com/p/playside-plyasx

I'll include the summary here:

4 bullet Summary

• The bull view: Playside’s creative leadership continues to release unique and popular original IP. The work-for-hire segment grows in the background feeding cashflow, and the publishing division kicks-off nicely. These growing pillars lead to sustained growth in the 30% range for years to come.

• What the market is missing:
• Lumpy nature of the business can lead to dismissing a good strategy which continues paying off.
• Impressive track record of growth goes back to early days.
• Stronger industry tailwinds than most anticipate.

• Key risks: New dev tools means the large competitive landscape will continue to expand rapidly in the next 5-10 years. New entrants can enter the market more rapidly than ever before and release games faster than before.
• Some key client concentration, and increased headcount cost risk in WFH business.

• Bear case: A unlucky streak of original IP games that don’t take off mean more write-offs. New segments may fail to scale quickly, and all this puts pressure on cash burn. All the while, new entrants benefit from the disruptions in the industry and the new tools, eating away at Playside’s market share.

The presentation today from Playside had a bit of new information. Specifically, the 12 month forward work for hire order book is $28.6m as of today (this compares to $4.3m in WFH revenue in the recent quarter).

They did just over $10m in WFH revenue in FY22, and they expect about $20m in FY23. So great to see some ongoing traction for a segment that generates about half of total revenue.

Also, interesting that they highlight the consolidation of the sector with some of the large deals out there, and strategic stakes in many mid-tier studios. Not sure if that's suggesting they could catch a bid?

World Boss full release date has been announced:

As World Boss is a free title, revenue boosts for Q1FY24 will need to come from in game purchases. There will be a new battle pass and I imagine some new content packs at release, but they will only matter if people are playing the game and currently regular numbers are very low. There will be a new map and sounds like new game modes, so that may be more enticing to new players on release.

Based on World Boss being release just in time for Q1 I think we will see Age of Darkness getting its full release around Q2FY24

Good news this morning: Playside has announced that Rocket Flair Studios’ (RFS) Dynasty of the Sands is the first title to be signed to its publishing division.

The game is an Ancient Egypt-inspired survival city builder, teaser trailer here.

Playside will provide RFS with development advances relevant to agreed milestones, consistent with industry benchmark requirements for bringing the game to launch. Playside will be responsible for publishing and marketing, and will pay RFS a share of net revenue from the sale of the game as part of the agreement.

Playside has indicated it cannot predict likely revenues at this stage. This slide from H1 FY23 provides some clues around potential performance for indie games:

It is difficult to make forecasts at this stage, but it is obviously good news for the division to have signed its first deal. Should Playside gain traction with its publishing division, there is real potential of this one day being the largest revenue contributor for the company.

The Good

• Record Original IP (OIP) revenue of $5m, which exceeded my forecasts for the quarter. This was largely driven by the DWTD games, which management said provided an extra $1.9m for the quarter. The increased revenue shows the power of viral marketing across social media networks and Playside did well to try to maximise engagement across these channels. The DWTD IP continues to bear fruit for Playside, having acquired the IP for $2.25m.
• Cash flow positive quarter. This was largely driven by the increased original IP revenue, which was recorded off a lower advertising requirement. How much Playside can maintain this in the future is uncertain, but I expect higher advertising cost ratios going forward. 

• 30 Month WFH hire contract signed with Skydance. Whilst the value of this contract hasn’t been announced, it shows that Playside is continuing to keep a solid stream of contracts in the pipeline. Given WFH still makes up a significant portion of revenue, to maintain positive cash flow, the WFH deal pipeline needs to continue as staff costs continue to rise to meet the resourcing requirements.

• Further indications that the company is progressing through the transition to larger titles with a new indie game to be announced in coming quarters.

The Not So Good

• Total revenue slightly down on the previous quarter at $9.3m vs $10m. This was largely driven by a decrease in work for hire revenue, but management have highlighted that these contracts are based on milestones so some lumpiness is to be expected going forward.

What To Watch

• Based on the guidance numbers can expect Q4 revenues at a similar level ($9 - $10m) with OIP ~ $3.5m -$4m & WFH $5.5m to $6m.
• DWTD 4 coming out in May. This release may just miss the TikTok spike, but if the game is good and engaging, it will start from a strong position.
• No updates on AoD & World Boss, these are looking likely for full releases in FY24 which will help contribute to future revenue growth. Other contributors to monitor:
• Meta Mixed Reality - Revenue Share
• Beanland Alpha/Beta release & impact on NFTs
• Publishing division first game
• Based on the success of the DWTD IP the company may be on the lookout for other similar opportunities where they can own IP rights rather than licence. This wasn’t flagged but I can imagine that management have considered it given the success. This could be a risky use of capital.

Games Update

Download stats are out for March and it looks like there has been a general decline in most titles except for the DWTD TikTok boost. Based on these numbers and the forecast of additional revenue from DWTD I expect the original IP numbers to be marginally better than Q2, which may bump up to an new all time high for original IP (Current is $3.28m in Q2FY22)

Looking forward into Q4 there is an opportunity for the revenue increase to continue with a few key events: 

• Legally Blonde and Godfather have recently both just had significant updates, which means they may start to get another marketing push. This will be seen in a change in download trends
• DWTD4 is scheduled for global release on May 2nd which may catch the end of interest TikTok trend

• Beanland is scheduled for alpha release in May progressing for to open beta in July

• The beans NFT are starting to get more attention as the beanland release approaches

• Age of Darkness full release is getting close. As a full price game, the initial release sales should also provide a nice bump to original IP revenue.

• Worldboss reviews continue to improve as further updates are released. No indication yet for date of the full release.

Non-executive directors Mark Goulopoulos and Aaron Pasias both recently purchased shares on market -- spending 40k and 20k respectively.

Mark and Aaron are two of the three largest existing shareholders, each owning around 20% of the business. I am comforted that they also see value in the current price, noting the share price has taken a battering recently.

@RobW has already touched on this one, but I am also reassured that the team at Playside are making the right calls with business strategy. For me, although the bottom line numbers for the half weren’t great and the outlook for weaker original IP revenue for the remainder of FY23 is still in place, this half was about the longer term direction that the company wants to head in.

Mobile titles still remain a focus for Playside and revenue from the catalogue of titles is becoming more diversified which is a positive. What I didn’t expect to see was that Legally Blonde was the best selling mobile title, which aligns with the sensor tower revenue data. (This may be based on in-game purchases and other games generated more, but through advertising?)

Although there has been some success with the new mobile titles, Gerry did confirm my thoughts that they are looking toward larger titles in the future. 

In terms of the titles that were written down, it looks to be the Anti Gen NFT project, Pillage Party and DWTD titles. Gerry’s reasoning for this direction was sound.

The Work For Hire business looks to remain at consistent levels for some time and the deal structures are improving in both size and revenue share arrangements. The fact that Playside can pitch ideas, get paid for developing and also get to share in revenue demonstrates the relationships they are forming.

For the publishing division, looking to sign something this calendar year, and starting off small and low risk in terms of resource requirements.

Side Notes:

Sounds like World Boss might be taken out the back of the shed if the full release isn’t substantially better than the soft release (in a few months). Referred to as a brand building exercise. Without substantial resources I don’t see the game improving.

I may have been a bit harsh on the Legally Blonde and Godfather downloads. It sounds like the marketing on these titles has been scaled back while they improve features (They still have to essentially buy downloads though)

@Rocket6 posted about DWTD going viral. The original IP revenue will get a nice boost this quarter with a conservative forecast of $800k coming from DWTD alone.

Clearly the market was spooked by the PIVOT announced via the 4C.

Here's my take...

Analysts measure and monitor a Company's track record on the ROI following Capital Allocation, normally associated with acquisitions. The PIVOT as announced on Tuesday is nothing more than a strategic decision in support of an improved ROI on the allocation of Human Capital. This call is clearly not motivated by any economic stress nor any particularly failure. The Company is living through their own experiences as well as through their partner experiences, with a leaning to the future in gaming. Gerry Sakkas is not only a 'switched-on' individual, but enjoys a 360 degree view of the business and it's prospects. So, in my opinion. he is simply capitalising on the areas of greatest opportunity. Likely to see much more of this going forward.

As far as the 4c is concerned, I was expecting receipts to come in at AUD 7.5m - AUD 8 m range. So 10- 15% light. The declaration of the 'underlying' Revenue of AUD 10m provides a more than healthy offset. Accustomed to the common term 'underlying EBITDA' where once off or irregular inputs are removed. Intrigued with what is implied with 'underlying Revenue'. Something to do with write offs ? Dont think so. Anyhow, all shall be revealed inside of 4 weeks (H1 Financials).

And finally, they have signalled pulling the plug on mainly titles in pre-production (Original IP). This implies it is most likely to come from the following list : Dumb ways to Die 4, Dumb ways to Die Dumb Choices, An 'untitled' Dumb ways to Die and then Pillage Party and Anti Gen. Be interested to see what happens with the newly announced Dumb ways to Survive for Netflix. Was this the 'untitled' game from the above ?

In closing worth remembering that they do enjoy Revenue sharing on many of the Work for Hire programs. Elevates them to the Big Stage and by all accounts, their partners like the quality of their work. Remains a strong hold for me to be confirmed when we get to see the H1 Financials.

RobW

The Digital Games Tax Offset (DGTO), which will provide a 30% tax rebate for game development projects that reach an expenditure threshold of AUD $500,000, has been introduced into Parliament to be implemented imminently. More here.

The Interactive Games and Entertainment Association thinks the DGTO is "one of the best game development incentives anywhere in the world", and when combined with Screen Australia's "Games: Expansion Pack" funding initiative and various state-based incentives, Australia will be "among the best places in the world to make video games". 

With Playside being one of the biggest developers in Australia, this offset represents a significant tailwind for the company.

Trading halt until Wednesday - Interesting...

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02600656-3A607594?access_token=83ff96335c2d45a094df02a206a39ff4

World Boss has now been released on steam for Early Access and so far the reaction from players hasn’t been great with negative reviews far outweighing the positive.

The biggest detractors so far are the performance issues and the lobby issues on launch day which the team were quick to address but it definitely hurt first impressions.

This game was meant to be one of Playsides marquee titles so I will definitely be watching reviews and so far the poor market reception is a strong signal to review my thesis and holding

World Boss now has an official Early Access date, which has been confirmed as 20th of October.

It was announced in conjunction with a demo at PAX Australia with Lazarbeam & Fresh. There was also the release of a launch trailer on youtube.

https://www.youtube.com/watch?v=zlqiq8zoaNo

Hopefully there will be some details on the monetisation strategy for the game in the upcoming quarterly update.

Following on from @RobW and @Rocket6 posts I was going to wait until the end of the quarter to put this together but wanted to add my thoughts to their posts. Below is a table showing the status of the targeted release schedule from previous company announcements. Green is full release, blue is a soft release. 

First up the Mobile Titles

Legally Blonde

The Legally Blonde game was released across 100 countries at the start of the quarter. Tick. The game itself is a pretty basic colour match puzzle game with a legally blonde “story” overlay. Progress through the game is incentivised by requiring levels to be completed to progress through the story and earn rewards to customise your character. Customisation and level power ups can be purchased to fast track progress.

In August the game started to get a bit of traction with an estimated 160k downloads and $100k in revenue for the month. 

Mobile game download and revenue statistics from Sensor Tower https://app.sensortower.com/

Godfather

Next up is the Godfather game which is still in early release and currently only available in Australia, Great Britain, Canada and the Philippines. The game is an “idle” style which involves upgrading items to generate more money, wait a while then upgrade them further once you have accumulated the required amount, the game in general nudges the user to speed up the upgrade cycle with purchases. There is some Godfather flavour to the game but it really is superficial with some basic dialogue and quests. The level layouts and artwork is generally well done, but that's as far as the game goes. Reviews on the game have been mixed so far, mostly down to bugs that are still being worked out, but to me there isn’t a lot of “game” there and I feel like it is a missed opportunity with some good IP.

DWTD

DWTD: Dumb Choices is out as a very early release and so far early reviews have not been kind. Currently it’s not available in the appstore to try out. Screenshot is from Playside promotional material

The other DWTD title is a sleep assistance / meditation app for kids. Dumb Ways to Sleep. I gave this one a download and listened to a few of the tracks. It looks like the team has gone to some effort to create some decent content here and the app itself is pretty polished in regards to the UI and artwork. Playside have partnered with Peaceful Kids, a mindfulness and positive psychology program when developing the app.  The problem I see is the price point. $15 /month in a very crowded market place.

Idle Recycle

Idle recycle is another idle game. This time about recycling! Collect cash, upgrade your facility, repeat. If this game looks familiar, it’s because it is identical to the previous game Idle Area 51. In previous updates Playside said they had developed a toolkit which allowed for the fast development of new titles. It appears that the toolkit is just changing the skin of the game and changing a few lines of text. Other than that, some of the initial reviews look to be positive.

Dino Warfare

On toolkits, the other toolkit Playside have developed is WARKit which looks to also be getting a few reskins. Dinosaurs this quarter, fantasy beasts in Q2. Once again there aren’t any new developments in this iteration of the Warfare series. There are dinosaurs though.

For those who are unfamiliar with the warfare titles, you start with a single unit and earn coins after each successful battle. Those coins are then used to run a lucky dip on a new unit, which you can then merge to upgrade, rinse and repeat against progressively larger and harder armies. Both armies are controlled by AI so there isn’t any skill involved in the game. I was going to say that the difficulty level doesn’t even force you to watch ads to progress, but I did hit a wall at Mega Iguanodon below.

The previous warfare titles have been successful and I can’t see why this one will be any different as I can see the dinosaur theme being attractive to players. So far there isn’t much data to be able to determine how this title is heading, however there should be some better metrics available after the month’s end. (For this title and the other recent releases). These will be worth tracking month to month.

On pricing of the mobile titles in game content in general, the price of items in the store are downright crazy. $100+ for some gems (insert other object) to get some more items / speed up the game?! This was always one area where I was hesitant in investing in Playside due to the predatory nature of the in game currencies in mobile gaming. I will definitely be reviewing my holding in the company after seeing the cost of items in Playsides stores.

PC Titles

Age of Darkness

Age of Darkness is now coming up close to a year in Early Access. In the Annual Results summary it was advised that the release will be pushed into H2FY23 to continue to develop the campaign and multiplayer modes. This is the release I am most interested in as it is the first of the real games that Playside have in the development pipeline. AoD continues to get downloads on the steam store, however any meaningful revenue won’t be generated from the game until it is a full working title. I’m still yet to play AoD as I was hoping to wait for the full title, but might have to give the early access a spin. Reviews on steam continue to indicate good things with 82.98% positive out of 4474 reviews.

Some recent gameplay footage below.

https://www.youtube.com/watch?v=7AjrLVBpWfM

World Boss

World Boss was the next PC game that was scheduled for an early access release this quarter. It looks like it may miss the window, with SteamDB recently showing that it could be up for a 20 October 22 release. Currently it is in closed Beta testing, with some streamers releasing gameplay footage. It's hard to get a read on how the game is received in the discord channel as there is so much other general chat room noise.

https://www.youtube.com/watch?v=zQFYwAehVYo

Game website:

https://www.worldboss.io/

The game looks like it could be a fun straight forward FPS. Do I think it has what it takes to get a cult following? Not at this point, but as @Rocket6said promotion is where the streamer partners will get to earn their keep

.

@Hands s posted in a straw a year ago that at the time based on the game catalogue, Playside did not have a future, currently I think the truth of that statement is very dependent on the success of these bigger PC titles. Mighty Kingdom is cautionary tale of what happens when IP fails to hit the mark. Particularly with the time and resources required.

The next several months are going to be telling for Playside, whether they can continue their growth as a studio in its own right or end up functioning as a labour hire for the big studios that reskins some mobile games every few months.

Thanks @RobW. This was the reminder I needed to do some DD on World Boss. With early access expected to occur in Q2 FY23, it is probably a good time to open up some dialogue on Strawman.

First things first, World Boss is a collaboration with influencers LazarBeam and Fresh. Who are they?

LazarBeam

Lannan “LazarBeam” Eacott is an Australian YouTuber, who rose to fame at the height of Fortnite’s popularity boom in 2018. By 2019, Lazar had hit 10m subscribers and was the third-most-subscribed Fortnite content creator on YouTube.

He still streamed Fortnite separately on Twitch until Jan 2020, when he signed an exclusivity deal with YouTube. He currently has over 20m subscribers on this platform, with a few million on Twitter.

Fresh

Harley ‘Fresh’ is an Australian Twitch streamer and YouTube celebrity – and like Lazar, he is known for his Fortnite content. Fresh currently brings around 18 million followers and subscribers across his socials and his YouTube channels and has accumulated over 2.5 billion lifetime views throughout this career.

I mentioned this a few months ago – getting influencers on board can have a significant impact on the reach and subsequent revenues associated with a game. Playside has done one better here: they have collaborated with two significant gaming influencers that have millions of subscribers between them and an ability to reach gaming markets across the world, with minimal (paid) advertising required.

The game

World Boss is a first-person shooter with a roguelike progression system, where players will take on 15 other players in fast-paced arena combat. The game itself looks pretty appealing, with clear similarities to Fortnite and Apex Legends, although slightly more ‘Arcadey’ based on the snippets I have seen. Like these games, World Boss looks like it has the ingredients to be addictive.

Playside is the developer and publisher (unlike AOD, which Playside developed in conjunction with Team17).

The game will be free to play, with in-app purchases offered to allow for earning rewards and unlocking cosmetic options (again, similar to Fortnite). This makes forecasting the success of the game incredibly difficult, even when we are able to provide estimates around player numbers. Essentially, successful free to play models require an ability to reach people globally, so the collaboration with two prominent YouTube personalities is really important. Finding the balance is also really important -- on one hand you want as many people playing the game as possible, and this is easier when it is free to play; but on the other hand, there is a requirement to make money and keep the lights on. Fortnite nailed this, and many games are starting to shift towards this model (eg Counter Strike, Apex Legends), so it isn't exactly new. But this also results in World Boss relying heavily on in-game purchases to pay for servers and recoup game costs -- and then split any profits between the collaboration team and Playside. But announcements already suggest the game will feature a comprehensive progressive system, with unlockable perks and weapons, customisable builds and playstyles, and a rankings leaderboard. If they are able to foster a competitive landscape where players are actively involved in trying to 'progress', often helped by in-game purchases, a free to play model could work really well.

Both Lazar and Fresh have started to market the game, requesting that followers ‘Wishlist’ the game on Steam and join the new Discord group.

For example, Fresh released a video in Jan 2022 discussing the game. It has received more than 1.3m views to date – link here. As we get closer to release, you can bet that both Lazar and Fresh will start to hammer their socials promoting the game. Additionally, post-release, Lazar (and probably Fresh) will start to stream the game. When you consider the audiences that will see what they are playing, it will peak curiosity and naturally start to draw people to the game. If it starts to gain popularity, it will attract other prominent streamers, and this is where the snowball effect can start to happen. As mentioned above, it looks like World Boss has lots of similarities with Fortnite. This is obviously the game where both Lazar and Fresh made a name for themselves. As you would expect, a good majority of their subs would be Fortnite fans and interested in watching/playing similar arena-based games like World Boss. This bodes well for the game's release.

Herewith an extract from an investor news letter which will add to future Revenue.

Worth remembering that Playside have indicated a carry on Work-for-Hire into FY2023 of more than AUD 15 m. They are also on record that they expect Original IP Revenue to exceed WFH Revenue in FY2023. Worth a read ....

I am pleased to share two very exciting pieces of news that have recently occurred at PlaySide. The first is that we successfully launched our mobile game Legally Blonde: The Game on iOS and Android mobile devices globally a few weeks ago. The second is that we recently made a new key hire in our Chief Strategy Officer Benn Skender.

You may recall that back in March 2021, PlaySide signed a license agreement with Metro-Goldwyn-Mayer (MGM) to develop and publish a mobile free-to-play game based on its feature films Legally Blonde and Legally Blonde 2: Red, White & Blonde. Under the multi-year agreement, PlaySide was provided with a license to incorporate the movie themes and branding from the iconic films into a mobile title.

Legally Blonde: The Game is a combination of captivating legal narrative and Match 3 puzzles, including extensive character customisation options, casting, and empowering freedom of expression and speech through narrative choices. Players earn stars to continue the storyline, unlock sleek fashion designs, earn exclusive boosters and more across 500+ levels of themed board layouts.

Now that the title has launched globally, we will focus on our marketing plan including influencer promotion, global PR and press and social media coverage. We also have a real focus on continuing to improve the title by regularly adding new features and content updates to further enhance the users’ experience. If you haven’t already, check it out!

Early key metrics and reviews during the soft launch phase have been very positive and demonstrate that our vision for the game is resonating with the audience. This is a key milestone for PlaySide as it is the first of many planned launches for FY23 as we execute on our strong pipeline of Original IP titles.

****

Love the bit I have highlighted in Bold. The Godfather to follow and then the big one ' Age of Darkness'. Another year of 'stellar growth' on the cards.

RobW

@thamno has covered the announcement already so I will only add a few thoughts.

My initial impression of this update is that it is a positive for the company on several fronts. The first is that the addition of the publishing division will provide opportunities for additional revenue streams outside of the existing Work For Hire and Original IP. There is a large market for indie games of which some can be hits (An example being Untitled Goose Game out of Melbourne which has sold over a million copies and won multiple awards). Having this division will also give Playside exposure to emerging talent within the industry for ongoing collaboration or future additions to the team.

Also if the publishing division is successful it will allow the company to self publish its own in-house titles providing a greater share of revenue for the company. There is the risk that if Playside publish their own titles they may miss out on the exposure that a more established publisher could provide however with the appointment of the management team with experience in major games companies, Playside is hitting the ground running, so it will be good to see the first titles that come out.

I do expect that the new division will be a drag on operational cashflow for the several quarters at least. While the company has a decent amount of capital available ($40m cash) the upside potential is there.

Playside and Meta Extend & Expand Work-for-Hire Agreement

In addition to @Learner’s comments, I think the key words in the announcement are ‘significantly expand’. The extension is one thing, but Meta doubling down and expanding what Playside were already offering is impressive. This provides further validation into their offering and some insight into what is increasingly becoming their competitive advantage – their brand. If Playside continue to set realistic goals – that are attractive to AAA counterparts – and meet their deadlines, their competitive advantage will only continue to grow. The gaming industry is full of ‘maybes’ and delays; Playside appear to be bucking this trend.  

The company signing a separate six-month contract to provide VR services is further evidence of this. If they do traditional WFH so well, why not give them a crack at the VR side of things too? Playside are investing lots of time and money into this capability – so its good they are attracting interest here – and there could be lots of blue sky ahead if they can capture even a fraction of that future market.

Lastly, while there is no reference to revenue in the announcement, my expectation is the expansion in services will have a material impact on FY23 receipts.

Disc: held

Highlights

• Cash flow positive, with 8.5m inflows and PLY’s second quarter of cash flow positive results.
• Record quarterly revenue of 14m – up 403% on pcp and 157% on QoQ. That sort of growth requires no commentary…. bloody impressive. BEANS generated 8.4m alone – exclude this and PLY have experienced revenue growth of approximately 5.4m (vs 5.3m in Q2).
• This takes revenue to 23m for the FY thus far. This blows my initial 2022 revenue projection out of the water (20m).
• Generated a record 14.77m cash receipts from customers during the quarter, an increase of 642% pcp and 167% QoQ.
• Over 40m in cash holdings, a stronger position than when they entered the quarter – plenty to fuel future growth without having to tap shareholders on the shoulder.
• WFH agreement with Activision Blizzard, which similarly needs no introduction or commentary.
• Signed the lease for a new studio on the Gold Coast, with a planned opening of early May.
• PLY increased its workforce to 152, with a whopping 60 staff added during Q3. This includes producers, programmers, artists etc etc.

This was a cracking result, largely fuelled by PLY dipping their toes in the murky NFT waters. The business will launch additional products within the BEANS universe over the next 48 months, so that is something to keep an eye on – particularly due to this being key for PLY’s Metaverse and Web 3.0 strategy.

Original IP was again impressive, with 11m in revenue (including 8.4m from BEANS). This figure also includes Age of Darkness development revenue in addition to revenue from its mobile games’ portfolio, but they don’t reveal how much. Of note, the Age of Darkness release is planned for global launch in Q2 FY23.

Work for hire revenue from the quarter came in at 2.78m. Nothing phenomenal, but the ongoing validation here – in addition to steady revenue inflows – provide PLY with brand benefits and cash to keep the lights on while they pursue original IP opportunities.

The business provided updates for their original IP titles in development. I won’t repeat them here, but there are 7 titles (not including Age of Darkness which I discuss above). The majority are planned for launch in early FY23.

The business will split original IP into three divisions – mobile, PC/console and Metaverse/Web 3.0 – with GMs appointed to each. This sounds pragmatic and will help the business align staff with relevant skills to the right division. The business has also hired a GM for WFH – lets hope this individual knows how to talk the talk because you would think the role is primarily outwards facing -- dealing with AAA developers/publishers.

Last thing from me – this quarter's cash flow statement reflects how efficiently gaming companies can generate cash when original IP titles start to gain success:

When you compare this with PLY’s Q2 results, you will see that there is almost no difference to the business’ marketing, staff and corporate costs – so revenue earned will shift straight to PLY’s bottom line – an excellent example of operating leverage.

Disc: held 

A bit late to this one...

The Good

Increase in both WFH (57% QoQ) and Original IP (21% QoQ) revenue in Q2FY22. There has been growth in both company sectors for several quarters now which demonstrates the company is executing on its strategy. At current price levels a high level of growth is priced in so this needs to continue to meet the current market sentiment.

Q2 was operationally cash flow positive, which is a solid position to be in with the number of titles ready for hard launch at the tail end of this year. Staff levels are increasing and the new office , so costs 

Additional Work For Hire deals with major gaming labels. Management reiterated the fact that along with the economic benefits of these deals, they are also strategic as it allows them and their staff to collaborate and learn from major studios. This can only help refine future titles that Playside are working on. 

The Bad

The OTK Partnership announced in December was terminated by the quarterly announcement in January. This is fairly soon after the announcement so likely some DD issues or creative differences? It’s not the best look and hopefully there isn’t much more to this one, but something to note and better that any potential issues are identified and dealt with early.

What to Watch / Targets:

Original IP is the key operating area where Playside needs to kick goals as this is where the upside in revenue and margins lie. So this means a solid forward schedule of games that are meeting release dates. Between the quarterly update and half year update the Age of Darkness date changed from Q1FY23 to Q2FY23. Until the full game we have likely seen most of the early revenue from this title unless another update / marketing push is carried out. As a guide there has only been ~3,000 new followers on steam this quarter.

In the mobile titles The Godfather game also shifted from Q4FY22 to Q1FY23 between the January and February reports. 

Two new mobile titles based on the existing Idle & Warfare infrastructure are also scheduled for FY23. Given the current release schedule I would expect that original IP will be down in H2FY22 (excluding Beans NFTs - This may be captured in a separate Web 3.0 operating sector?) with a move back higher in H1FY23.

Current Facebook WFH agreement ending this quarter. A portion of the WFH deal terms have been for less than 12 months. (Blizzard & Shiba both end this year) As PLY are expanding to another studio on the Gold Coast and expanding staff count, will need to continue to expand on WFH deals or sign with new companies if they are maintaining a dedicated staff of developers for this division.

Foray into the Web 3.0 world has had its ups ($8m in revenue in one month but this has now settled down to roughly an annualised rate of $500k / year in royalties from secondary sales) and downs (Several security breaches), so this will be an area to watch on how they keep their user base engaged until the linked beans MMO comes out at the end of the year. Following the discord channel for this, NFT investors have investment horizons and attention spans that are measured in days.

After the initial success they have hinted at further Web 3.0 projects. As mentioned in other straws from my point of view, Playside needs to ensure these projects have some application other than a quick NFT dump and cash grab or it tarnishes the integrity of the company.

It looks like Playside are learning the hard way that life in the current Web 3.0 is still very much the Wild West after having their discord channel hacked and potential comprise of holders wallets.

This will be interesting to see how they navigate through this and how it impacts the current Beans NFT project

PLY has an agreement with Activision announcement in the last 7days..

I have noted this update on W.Buffetts holdings..

Q4, the Berkshire chief picked up nearly 15 million shares of Activision Blizzard worth nearly $1 billion, according to a 13F filing tracked by whalewisdom.com. ATVI stock plunged in November amid an earnings miss. But shares surged in January after Microsoft (MSFT) agreed to buy the troubled video game company in a blockbuster $68.7 billion deal.

The conglomerate also bought 107 million shares of Nu, a Brazil-based digital bank holding company, worth more than $1 billion. Nu Holdings isn't Buffett's first bet on Brazilian financial tech companies — he bought....ECT............

* Also I have noted the craze via NFT you purchase Ethereum get a wallet and buy monkey faces.. If you have monkey face on say Twitter you are considered trendy and worth following..

So welcome to web 3.0 of Meta , NFTs..

09-Feb-2022: Canaccord Genuity: BEANS launch drives ~40% revenue upgrade [BUY, PT raised from $1.10 to $1.30]

10-Feb-2022: Canaccord Genuity: A blizzard of activity  [BUY, PT: $1.30]

Author: Benn Skender | Analyst | Canaccord Genuity (Australia) Ltd. | [email protected] | +61 3 8688 9105

Twitter: Benn Skender (@bennskender) / Twitter

Wow. Some week it has been for PLY.

The minting exercise was akin to a circus, but the company responded in a way which was commendable. First and foremost, PLY should put revenue opportunities to the side, because reputation and brand are and will always be the most important thing in the gaming industry. The next 6-12 months are irrelevant in the scheme of things – PLY need to position themselves in a way that will act as a springboard for 5-10 years’ time. Companies NEED to know PLY are reliable, but more importantly legitimate - particularly with some of the fluff/risk associated with the NFT, Metaverse and crypto space. So, while the technical issue that occurred was disappointing – and marks for me the first significant error PLY has made in a very strong 12-month period – their reaction was transparent, honest and conceded that what occurred wasn’t good enough. To that extent I give them a ‘OK, fair enough, get back to what you guys do well’. The reaction from the community suggests much of the same (which was initially my biggest concern).

And on to this announcement. PLY has signed a material fixed price WFH co-development agreement with Activision – who need no introduction. This will involve PLY providing fixed-price co-development services for Activision for a 10-month period. Looking a little under the hood – it will involve PLY providing production, engineering and user interface services to Activision. In a nutshell, this is where PLY is really starting to develop subject-matter expertise. There is no mention of price, only that it is material and doesn’t involve revenue share.

That said, I honestly couldn’t care any less about the revenue. PLY should be focused on ensuring they continue to impress and align with the goals of these AAA partners, and provide a service that sets them apart from others. The gaming industry is an enormous but at the same time very small place – impress the leaders with your offering and they will keep coming back.

The agreement with Facebook, and their subsequent renewal, suggests PLY are currently doing this well. In addition, the agreement with Activision suggests they are turning the heads and attracting the attention of the world’s most significant gaming companies. This to me suggests they are doing something right.

Disc: held  

I know @shivrak will have some input on this but thought I would get in early.

It looks like there has been a bit of funny business going on with the Beans NFTs. Recently on the discord channel the team has announced that the NFTs that were to be burned have now been minted and released to the market impacting the value of the secondary NFT market.

https://opensea.io/collection/beans-dumb-ways-to-die

So now the company has taken the initiative to keep community sentiment in the project by buying back NFTs to raise the price.

This could be a costly exercise which will impact the total proceeds from the project announced today, given they are going to be buying back at a premium to the minting price. Currently there are 396 listed NFTs below 0.6 ETH. There will likely be an on market announcement tomorrow to follow on from this. Interesting times.

Building on the Dumb Ways To Die Beans story, PlaySide have now announced the direction they will be heading in with the Dumb Ways To Die franchise with a post on Medium which from my limited experience with the website is a bit of a crypt/NFT project pumping ground.

https://medium.com/@beannfts/weve-bean-thinking-about-the-future-178008658cbd

TODAY WE ARE ANNOUNCING

1. The Beans MMO / Metaverse
2. 3D NFT avatars
3. “Bean Pet” NFTs
4. Dumb Ways to Die 4 & More!
5. Metaverse, TV & Franchise Extensions.

So my initial takeaways:

• PC Launch late 2022, Mobile 2023 so will potentially contribute to revenue in FY23
• DWTD MMO? Interesting, but will need to see more on how this develops. Potentially a platform for twitch streamers to stream new creative ways to die? I know I seen enough random gaming streams in my Facebook feed that there must be an audience out there for it. From my scratching at the surface of gaming NFTs it seems that typical gamers aren't really interested in the crossover between the two. The 3D Avatars will at least provide some use case for the NFT release and potentially drive further interest in the game.
• The Bean Pets sound like fluff to drive a secondary market where Playside will potentially continue to generate revenue through royalties. To get a free pet "drop" you will need to own 2 Beans and there will be few people who manage to get 2 in the initial drop. This will be something to keep an eye on as on Opensea royalties can be set up to 10% of every future transaction and could provide further boosts to revenue. (Or overall assets as @shivrak pointed out). I could be wrong on how this process works and happy to be told so. (The only NFT I have ever owned was a brief experience with a digital race horse on ZedRun)
• 3 more DWTD mobile games to be released. No dates mentioned.
• The final point sounds like continued expansion of the brand, but a potential TV Series is probably the biggest iron in the fire there.

The DWTD team have been really pushing the socials marketing on this one, and pushing the AAA background of PlaySides involvement so hopefully the deliver the goods.

Disclosure: HODLer

Playside are jumping into the NFT space under the Dumb Ways To Die franchise with the announcement of Beans NFTs under the Playside and DWTD twitter accounts. I really hope that Playside incorporates some utility into the NFT, as it seems that every man and his dog are creating a NFT for something these days. Based on the roadmap on the project website, it looks like there will be an upcoming AR Title that provides utility for your “Bean” within the game.

Project website www.beansnfts.io

Currently scheduled for minting in February 2022, this is likely to contribute to Q3 revenues, however there are no details as yet on qty or minting costs.

The DWTD franchise lends itself well to the current NFT mania with its bright colourful characters that also carry with them a sense of nostalgia. If the discord channel is an indication then this project will likely be a success as it has over 17,400 members since creation on January 6, although for myself as a holder of Playside, I really hope this is more than just a cash grab.

In the FY22 Roadmap released in the Q4FY21 update, Playside had indicated that a multiplayer update would be released in Q2FY22 for Animal Warfare which has been their most successful mobile title to date.

Q4 Update

Multiplayer was added in Version 2.9 in December 2021.Multiplayer adds a more challenging element to the game as it is fairly easy and repetitive in solo mode. This update should add some extra longevity for players and continue to generate revenue from the title for the rest of FY22.

Apple Store

The update itself isn’t major, however is a positive as an indicator of Playside hitting release targets. If the PVP is successful, it could also be incorporated into the other warfare titles.

That is the third announcement in a number of weeks that management appear to have timed to perfection.

1. The first was the signing of a material contract (with 2K games) closely followed by a well-timed capital raise.
2. On the second occasion, they announced that over 1.5m securities were to be released from Escrow on the 8 Dec. This again was closely followed by the announcement of a new partnership with One True King.
3. The third occurred today, the date securities were to be released. Again, on a day that was suspected to bring some sell pressure, they announce yet another work-for-hire deal - this time with Shiba Inu.

How many times before a coincidence becomes a pattern? Credit where credit is due, Gerry Sakkas and his team continue to demonstrate the qualities I like to see in a management team. Also, compare this to Damstra's recent capital raise when their backs were up against a wall - it makes one hell of a difference.

DISC: Held

The share placement details for the Playside capital raise came out yesterday and going through a quick review before potentially jumping in this round at the $0.75 price.

@Shivrak covered this in an earlier straw and I got to a similar revenue forecast by breaking down estimates of each of the revenue streams.

Using $21 million for FY22, this puts the placement at a Price/ Sales of ~14.5, which isn't massively high, however the company would need to continue its current growth rate to justify such a multiple.

My previous valuation for Playside prior to first quarter results had a FY22 price target of $0.42 on a P/S multiple of 10, so this is at a premium to that estimate, however I was previously forecasting revenue around $15.7m.

Currently the share price is trading at a premium to the placement price, however it is now falling likely to continue to fall within a pretty close band of the $0.75 cent range as the SPP are issued tomorrow.

Playside has so far demonstrated an aggressive growth strategy with a management team who appear to be focussed on executing and in my eyes the raise is a positive for the company.

As per Playside's Instagram page, they're opening a new studio on the Gold Coast.

https://www.instagram.com/p/CWXugvpPQxF/?utm_medium=share_sheet

What we know

• Team17 (publisher) and Playside (developer) recently signed a strategic long-term agreement. Under this, Team17 will provide a series of recoupable monthly payments over nine months (A$2.44m in total) in FY22 to fund continued development of Age of Darkness, in exchange for publishing rights. The payments are recoupable from Playside’s future revenue share.
• Team17 and Playside will both take a portion of Age of Darkness future sales.  
• Typically, Valve (Steam) takes around 30% of all game sales on Steam. This is currently relevant to Playside (and shareholders) now. Something to be aware of – when a game starts to enter 10m – 50m sales territory, Valve’s cut is reduced to 25%. For every sale after the initial $50 million in sales, Valve’s cut is further reduced to 20%. These changes were made in 2018 by Steam to benefit game developers and publishers.
• Age of Darkness retails for A$31.95 on Steam. Following its release on Steam, the game was on sale for A$28.95, for approximately a week.

For those unaware, a game developer (Playside) makes the game. A publisher (in this case, Team17) – usually equipped with far more capital – typically fund the development and subsequent marketing of the game.

I reached out to Playside’s Investor Relations last week asking for a breakdown of the revenue split between them and Team17. Yes, this stuff is contract-bound and I wasn’t expecting the company to address it, but I wanted to test how the company might respond to my question. Up until this point, they are yet to respond. This is a little disappointing, but I will ask a similar question of Gerry at the next Strawman meeting (looking forward to this one!)

Given there are some unknowns here, we have to make some assumptions. Let’s assume that the split between Playside and Team17 is 25/75 – noting that we still have to include Steam’s cut on sales. We also know that Playside will provide 2.44m in total over nine months and that this is recoupable from Playside’s future revenue share. Based on the contract, it is possible that Playside will not earn a single cent from Age of Darkness until this 2.44m is repaid to Team17. Alternatively, its also possible that Playside will forgo a portion of their revenue payments to Team17, to ensure Team17 are able to recoup the 2.44m over time. Unfortunately we don’t know the answer to this, but poor negotiating by Playside would result in something like the former, whereas a more favourable contract would see a repayment like the latter. Either way, this is something to keep in mind as the strategic agreement between the two states that the payments provided to Playside are recoupable, based on future revenue share.  

At this stage, I estimate that there has been approximately 40,000 game sales to date. Given the game was on sale for a week, I will apply an average sale price of A$30.

40,000 sales x A$30 = 1.2m

• Valve’s cut: A$360,000, subtract this from 1.2m = $A840,000
• Playside’s cut (25%) of the $A840,000 = A$210,000
• Team17’s cut (75%) of the $A840,000 = A$630,000

Let’s skip forward six months and assume that there has been 300,000 game sales. This would result in 9m in sales, or 6.3m after Valve takes their cut. Playside would take 1.5m, in contrast to Team17’s 4.7m.

If the contract isn’t favourable to Playside, and provided the estimates above are reasonably accurate, it’s possible the company will not receive a single cent in revenue until around 450,000 sales are made – by which point Team17 will have recouped their initial outlay of 2.44m.

Let me know if there are any errors/issues with the estimates above. 

Launch update

At the time of this straw there were 658 steam reviews, with the overall/average ranking ‘very positive’.

• 593 positive
• 65 negative

460 of the reviews gave a ‘very positive’ review.  

The developers will be very happy with the initial reviews they are getting from the community, in addition to the traction the game is currently getting.

This is incredibly important for a new game – positive reviews help algorithms and trending patterns – this benefits the games overall launch.

70 steam ‘curators’* have reviewed the game (several have over 20,000 followers), the overwhelming majority of these ‘recommend’ Age of Darkness. Again, great for the game’s launch as curators help drive activity – it will pop up on their home page post-recommendation and their followers will see their review. 

The game is still ‘trending’, ranking at no. 22. Estimates suggest 50,000 – 100,000 already own the game.

Another analytical website suggests 2100 people are currently playing the game as I make this review, with the game’s all-time ‘peak’ at 3500. Average playing numbers is recorded at 2409 – this is the metric to watch over the next month or two to help determine traction over time. 

The first week is crucial for a new game. As it stands things are looking positive for Playside. 

*A Steam Curator is a singular individual or organisation that uses the Steam community platform to review and recommend games to people who follow them.

So far the intial release of Age of Darkness seems to be solid. Currently showing up on the featured banner and top sellers list on Steam and has ~90% Positive reviews at the time of writing. Playside are also already proactively communicating upcoming updates to the community in the development roadmap which seem to address most of the issues raised in negative reviews. However they haven't provided a timeline around each of the milestones.

For how well the game sells only time will tell, but devs and Team17 seem to be putting it in the hands of streamers with some pretty big followings (eg. SplatterCat - 668k subscribers)

Steamdb which shows download estimates based on the number of reviews and other sources and is currently showing a range of 6k - 18k. I will come back to this site and compare to Q2 quarterly if they release some figures to try gauge the accuracy for estimating revenue from the game.

The other factor for estimating revenue is the split. If they split evenly with Team 17 it would look something like this.

Valve (30%) Team17 (35%?) Playside (35%?) 

Which at the current price of $28.75 equates to about $10 to download.

Now I just need to get a better computer so I can actually play the game.

PLY – Management & Culture

“There’s no fate, there’s no everything happens for a reason, just go out and find jobs, go out and do the best you can do and nothing is going to magically come to you and if it does that’s luck.”

~Gerry Sakkas CEO PlaySide Studios

Management

Gerry Sakkas – CEO & Managing Director, 21.5% ownership

PlaySide Studios is led by it’s founder, Mr Gerry Sakkas who has over 12 years in the gaming industry. A speech by his idol Steve Jobs inspired him to leave his job at Electronic Arts in 2011 to start PlaySide Studios. Jobs message was to stop living someone else’s life and do what you love. Gerry had been at EA for 5 years where he had worked his way up from testing to lead designer of the whole studio – which is nearly impossible.

Mr Sakkas left EA with a $15 – 20,000 redundancy, a $10,000 credit card bill and didn’t pay himself a salary for the first 2 years. This is an advantage of investing in founder led companies; they’re all in. In addition to the financial sacrifices, as a 24 year old, he sacrificed the beach holidays and partying as well: “…so I had to see everyone going to Mykonos every year for like five years when I started Playside… the boys were going everywhere and I was just doing the place up and just slogging away…” These sacrifices have turned his $30,000 investment, together with his 2 partners investments, into an $11M revenue company with over 90 staff.

A small or microcap company not being reliant on a single person is a big advantage. Mr Sakkas has wisely set the company up to be less dependent on himself: “I've set up the correct middle management and the correct upper management… they’re pretty good without me, I still get very involved but I can step back…”

Gerry is a passionate, confident and driven entrepreneur. His high confidence is balanced with humility and accountability, stating “my best value is being able to back myself and going ‘no this is what it should’ be but then if it went wrong going ‘hey guys like that was my fault I screwed up like let's do it again’.” Employees appreciate a leader who hold themselves accountable and take ownership of their mistakes.

He shows a strong work ethic and looks for this in his employees. The bar to work at PlaySide is set high as he looks for self-taught individuals lacking a sense of entitlement who are willing to go out and earn it.

“…we live in this world where you can literally learn anything based on the power of the internet.”

“they're the ones that stand out every time. They've done all the YouTube courses, they've bought courses and done them. They're just naturally talented. The ones that just go to Uni think they're going to learn something [and be given something] that also says a lot about their personality generally because you know who wants to hire someone who just is expecting something?”

“2 of my best employees didn’t do anything to do with games at all at university. They just had really good personalities that I liked and knew that I could train up to be machines and they’re both killing it.”

Gerry is the type of CEO I am excited investing my money with.

Mark Goulopoulos – Non-Executive Director, 21.4% ownership

One of the founders of PlaySide Studios, Mark has over 20 years’ experience in finance and investment banking and is a founding partner at Cumulus Wealth Management. He is responsible for corporate strategy for PlaySide and has led financing rounds for pre-IPO and ASX listed businesses.

Aaron Johnathon Pasias – Non-Executive Director, 21.4% ownership

The final co-founder of PlaySide Studios, Aaron has over 15 years’ experience in financial markets and property. He oversees the finances of the company and works with the board to ensure the company is meeting its financial obligations.

Goulopoulos and Pasias bring a strong business and finance knowledge to the company, while the remaining key management personnel have a depth of experience across leadership, games, sales, marketing, tech, acquisitions and more. Management are aligned with shareholders with over 64% ownership and no sell down in the recent IPO.

Culture

Unfortunately, PlaySide lacks any Glassdoor reviews but a few other resources can give us a glimpse into company culture.

PlaySide have a stylish, modern Melbourne office https://www.youtube.com/watch?v=DfSFYi7NQ0I and value quality over quantity with CEO Gerry Sakkas stating:

“The most important thing is just allowing people during the day to do whatever they want to do and then you’re going to see who works the hardest anyway. They don’t have to be at their desk the whole time…. I don’t care if you did it between 9 and 12 or whether you did it between 9 and 5.”

“I’m paying you to get the result I’m not paying you to be here 8 hours.”

Staff testimonials give us insight into what it’s like to work at PlaySide Studios https://www.youtube.com/watch?v=Pp4XARkgkOA

Producer Erin Halpenny says she’s surrounded by a lot of passionate people in her role at PlaySide, while producer and artist Taylah Walker says the company employs a mentor system where they team up juniors with more experienced employees. Juniors are encouraged to ask questions if they don’t know something. Finally, Adam Bax points out when assessing mobiles games, “You don’t have to like something to appreciate why it’s popular.”

PlaySide’s goal is to create a fun, productive work environment with staff happiness and job security as top priorities. Founder Gerry Sakkas explains why this is so important to him:

"TJ and I worked at EA for many years, and at one point, they made us all redundant, and then hired us all back a few months later on contracts. And at the age of 22, I was responsible for one of the largest console games that was being developed in the country, and I was on a contract,"

"At any point, they could get rid of me, there'd be no payout, no nothing, and I was sitting there making a game that could potentially make someone hundreds of millions of dollars. I don't ever want my staff to feel like that, and we've given a lot of them shares in the company too.”

"We want them to feel as much a part of this journey as we are, and that's how you retain really good people."

PlaySide tick all the management and company culture boxes for me with both appearing very strong.

References

https://www.youtube.com/watch?v=N5OTNZsk6NM

https://www.youtube.com/watch?v=Bzi6ufzXcwc

https://www.youtube.com/watch?v=TPfA97fQM20

https://www.afr.com/technology/playside-studios-gears-up-for-asx-debut-20201130-p56jba

On the most recent Australian Investors Podcast,Owen interviews Gerry Sakkas the CEO and cofounder of PlaySide Studios.
All items covered generally align with my recent research on the company and how I perceived the business strategy. What I did take from this is that I should be adding management interviews to my research checklist and I think listening to these after forming an opinion on a company will be a useful check to add to my process.

Link to podcast here:

https://www.raskmedia.com.au/2021/08/11/revealed-1-rask-rocket-asx-small-cap/amp/

Disclosure: Held

I came across @Rowey27 straw for PlaySide Studios about a week ago and added this stock to my research list as I thought I owed it my younger self to consider investing in a video game company. Fast forward to Friday where I spontaneously jumped in based off upwards momentum in the share price. I now must go back and carry out some due diligence and try to be impartial during my review.

What does PlaySide do?

PlaySide is an Australian video game developer based in Melbourne. They currently develop games across the Hyper-Casual, Casual and Core gaming categories. Income is generated through several avenues. The first is game development of both original IP & licenced titles with income generated via ad revenue, in app purchases & subscription fees. The second is work for hire development contracts to assist other studios and ongoing technical support and maintenance

Company History / Performance

PlaySide was founded in 2011 with an initial focus on contract work for hire working in conjunction with other studios. In the last few years, the direction shifted towards development for the mobile market which makes up ~ 50% of the overall games market. Since the IPO in December 2020, PlaySide is again looking to shift focus to incorporating larger, core games for both PC and Console into their business strategy.

PLY has structured the business into five core ‘pillars’. The first is the development of original IP games titles which has grown from 20% of revenue to 67% of revenue in the past year.

Recent examples of titles include Battle Simulator: Warfare, which it the third title using the WarKit platform. The first iteration of this title Animal Warfare has reached over 11 million downloads and continues to grow each quarter.

Idle Area 51, which is a top-down management / click style game which has received a rating of 4.8 from 7.1k reviews on the apple Appstore. PlaySide now has the toolkit in place for this style of game which will allow new titles to be rolled out quickly.

I downloaded and tried both titles and they both rely heavily on in game advertising to nudge users to subscribe. Both titles are rather simplistic and have elements of ‘just one more round’ which are traits of the casual game genre. This is where the one-off boost / upgrade payments come in.

A new PC title due to be released in September in the Real Time Strategy genre will be the companies first big step away from the mobile and looking beyond that a next generation console title is scheduled for release in Q3FY22.

The second pillar is developing titles under licencing of third-party IP. Two licence agreements with movies studios were signed at the end of FY21. The firs with MGM to develop legally blonde mobile game and the second with Paramount Pictures to develop a game based on the Godfather franchise. Both these titles are scheduled for release in H2FY22.

The third pillar is the work for hire contract development work, which has provided a steady revenue stream for PlaySide to continue to grow from. Alongside a 6 month contract with Facebook Technologies VR division, management have indicated that they are shortlisted for several material work for hire contracts.

The fourth pillar is industry and influencer partnerships. Youtube and twitch influencers are massive in the industry titles promoted and developed in conjunction come with an inbuilt fan base. An example of this arrangement is the title World of Pets, an MMO released in April 21. This title was created in conjunction with YouTube personalities Norris Nuts and after a successful launch has recently moved under Live Operations contract.

Another title which is being developed under this arrangement is a First Person Shooter (FPS) in conjunction with YouTuber LazarBeam & Twitch streamer Fresh is due for release at the end of 2021. The FPS genre is one of the most popular and lends itself well to potential Esports arrangements. This leads to the last sector of the business which is Esports.

PlaySide have a 27% investment in BIG Esports which is a consultancy aimed at providing business case insights and trends within the growing Esports industry. This stake will unlikely provide any material revenue, however, developing with Esports in mind provides significant upside for any title released that manages to grab the market.

Management

The company has high founder ownership with the three co-founders currently holding just under 65% of shares on issue, however these are locked up via mandatory ASX escrow until December 2022. The board of directors has a range of experience across the video game industry, IT Services industry, and growth of early-stage companies.

Valuation

PLY is currently sitting at a market cap of $142.9 million, which on FY21 revenue of $10.88 million and cash balance of $11.2 million from the recent listing gives an EV/Sales Ratio of ~ 12.1. Given revenue growth of 55% and a shift of revenue streams toward digital sales and advertising, a software multiple is becoming more applicable.

The current development schedule has new several new games being released each quarter, which at the current multiple has a reasonable amount of success for each title priced in. Looking at the valuation purely from a multiple of sales, I wouldn’t say I got in at a bargain price, but it currently doesn’t have some of the astronomical multiples applied elsewhere across the market.

Opportunities / Growth Catalysts

Some other potential opportunities for growth outside of the growing catalogue of games are general tailwinds from the growing industry, the mobile gaming growing at >13% YoY.

Management have indicated they are open to growth opportunities through potential acquisitions within Australia and Asia. The Chinese market has been identified as an opportunity for further growth.

Risks

The video game industry is highly competitive. Particularly in the mobile space where development timeframes are short, and costs are low. It is hard to stand out in such a saturated market. Another issue is trying to monetise games that have been released. With such a wide range of games to choose from and many being offered free, it is hard to derive consistent income from consumers. Reports from PlaySide referenced studies where it was found only 38% of mobile gamers actually pay to play.

There is also transition risk for the company as they move into development of PC & Console games. These titles have much higher development time and capital requirements, and if a title is not well received by the market, that has been significant development time that may have marginal return on capital.

Final Thoughts

After completing my research, I haven’t found my investment to be a terrible one, but it potentially may not be the best allocation of capital I could have found. I do enjoy small caps with a good story, and with a consistent release schedule going forward, there will be plenty of news for me to follow. There is the added benefit of being able to tell my partner that these games I am playing is ‘investment research’.

PlaySide is entering a key phase of the growth of the company and if the launch of some of the upcoming bigger titles is successful, this will reduce some of the execution risk for the company and l will review my position size.

Disclosure: Held