This company, which primarily develops, markets, and operates games on mobile devices and social websites earning revenue on basis of virtual goods, has been grouped into PC &mobile game sector in toys and gaming industry.
It seems that the demand for mobile platform- based gaming products provided by companies in this sector has been growing quickly in the past several years as indicated by average 15% annual increase in number of plays per day in the past two years. While, probably due to fast growth in players who do not purchase in the game or spend only a little, the average spending per person per play seems slightly declining, we have still seen increase in revenue from those mobile games. Demand for PC based network games seems declining during the same period of time.
Due to the shorter cycle of mobile games and depending on mobile phone platform, we have seen higher costs spent by mobile games companies on SG&A and development compared with console based and PC based games companies. The typical gross margin is about 70%, SG&A is about 37%, R&D is 28% and operating margin is about 5% in 2018. The typical enterprise cash flow/EBI ratio is 136. The average annual increase in EBI/share was high in the past two years.
It seems that the demand for interactive gaming product of this company has been increasing as indicated by continuing increase in number of plays per day in the past three years ( grows 10% and 20% in 2016 and 2017). The increase seems to be primarily attributable to increase in mobile games. While the spending per play seems fluctuated the trend is going up as well. Therefore, the game revenue of this company has been growing during this period of time. Demand for web-based PC games seems to be declining.
The first three months of 2018 compared with the same period of 2017 (ended March 31, 2018)
Net revenue increased 7%.
Mobile game revenue increased 10%.
Web game revenue decreased 17%.
Average DAUs (play per day) increased about 20%.
ABPU (spending per play per day) decreased about 10%.
The 2017 compared with the 2016
Net revenue increased 16%.
Mobile game revenue increased 29%.
Web game revenue decreased.
Average DAUs (play per day) increased about 10%.
ABPU (spending per play per day) was flat.
The 2016 compared with the 2015
Net revenue decreased 3%.
Mobile game revenue increased 17%.
Web game revenue decreased.
Average DAUs (play per day) decreased about 10%.
ABPU (spending per play per day) increased about 20%.
Its gross margin was improved slightly (about 70% in 2018). With improved SG&A as percentage of sales (down to 37% due to saving in G&A spending) and decreased R&D (primarily due to cutting in employee’ expenses), we see a largely improved operating margin (up to 5% in 2018). The average EBI/share continuingly increased during this period of time.
Stock performance
This company is having an enterprise price/EBI ratio of 136. We think that its stock is being relatively overvalued.
