Ten Square Games – Growth Story With a Winning Business Model
Ten Square Games (TEN) is a free-to-play mobile game developer with a successful track record of robust revenue and profit growth. Thanks to a potent marketing strategy designed to bring in new players to Fishing Clash its the flagship game app, by keeping subscribers invested with frequent updates and new features, TEN was able to increase annual sales from just PLN 3.8 million in 2017 to PLN 206 million in 2019. TEN reinvests its cash flow in creating new marketing campaigns for Fishing Clash, and in hiring top game designers and developers for its constantly growing team. Released in 2017, Fishing Clash is a relatively young game with plenty of commercial potential still compared to similar productions. We believe TEN has the ability to scale the game's revenue with improving monetization, marketing, and geographic expansion. Fishing Clash aside, TEN has three other new games currently in soft launch, set to move to full launch during the third quarter of 2020. The commercial success of these games will be an upside catalyst for our valuation. The coronavirus crisis is not a major risk factor from the point of view of the gaming industry - in fact, it might be an opportunity as millions of people self-isolate at home to practice social distancing. TEN delivered two years of stellar earnings growth at annual rates of 2.9x in 2018 and 90% in 2019, and in 2020 EBITDA is expected to grow another 72%. The ratio of operating cash flow to EBITDA averaged 79% in the 2016-2019 period, and with low investment needs this produced high FCFF. On our estimates, TEN is currently trading at a 28% discount on 2020E price-to-earnings compared to the gaming sector, increasing to 40% for the FY2021E P/E ratio. We initiate coverage of Ten Square Games with a buy recommendation and a target price of PLN 462 per share.
Ten Square Games SA is a Poland-based mobile games development company. The Company is focused on 3D simulation hobby games for people who seek outdoor experiences on their mobile devices, like fishing or hunting games. Its games are available on social platforms, a network of partner sites, as well as on Google Play, App Store and Microsoft Store.
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