Beyond Frames - Report comment Q1 2024

With a turnover of 60 (17) MSEK during the quarter, this was the fifth consecutive quarter where the company could demonstrate significant sales growth. Moreover, the sales during the quarter were the highest in the company's history. The growth can largely be explained by continued strong sales of Ghosts of Tabor, as well as the company receiving project financing for games under development. 

Ghosts of Tabor is a game developed by the game studio Combat Waffle, with Beyond Frames as the publishing partner. The game has been a great success since its launch in March 2023 and has consistently been on the bestseller list. In February, it was also launched on Meta's main store, the Meta Quest Store, after previously being in "early access" on Meta App Lab. Due to continued good cost control, both personnel costs and other external costs were slightly lower compared to the same period last year. During the quarter, the cost of goods sold amounted to 50,5 (10,6) MSEK, where the increase can mainly be attributed to the company's strong sales growth. Activated costs increased to 9,0 (4,5) MSEK. However, the activations were about hte same level compared to Q4 last year. All of this, together with the scalability of the company's business model, resulted in a positive EBITDA (including share of profit in associates) of 8,0 (-0,2) MSEK. The operational cash flow amounted to 7,4 (-21,5) MSEK during the quarter, where both the earnings development and positive changes in working capital positively affected the cash flow. At the end of the quarter, the company's cash amounted to approximately 20 MSEK.

The XR market's strong growth continues, with Meta's business area Reality Labs (including their VR operations) achieving a sales growth of 30% compared to the same period last year. Additionally, the well-known investment bank Piper Sandler - which regularly surveys teenage consumer behavior in the USA - showed that an increasing number of teenagers own a VR headset and that usage is increasing on a weekly basis. 

With six games in production (two through their publishing label), almost all existing resources within the company are fully utilized. Of these six titles, the company's wholly-owned studio Cortopia Studios is working on three different games, one of which received additional project funding of 2,5 MUSD during the quarter. Thanks to the project funding and the company's existing cash reserves, all of the company's games are now fully funded until H1 2026. The company estimates that at least five of the games will be launched before the first half of 2026. After the end of the quarter, the company launched the game Toy Monsters on the Meta Quest Store. The game has received very positive feedback since its launch and Beyond Frames expects the game to generate a profit on the investments made on the title.

The first quarter of 2024 was significantly better than our expectations, both in terms of revenue and results. In light of this, we choose to adjust upwards the forecast for both the current and upcoming years. For 2024 and 2025, we now forecast a turnover of 216 MSEK in 2024 and 234 MSEK in 2025. This is 30% and 9% higher, respectively, compared to our previous forecast. The positive earnings development during the period has occurred despite a gross margin of 16%, which is considerably lower than our full-year forecast of 21%. The low gross margin can be explained by Ghost of Tabor having a lower gross margin than self-produced titles. It should also be noted that the company reports its revenues before platform fees and revenue sharing with publishing partners.

For 2024 and 2025, we choose to adjust down the gross margin to 19% and 21%, respectively. This is based on the expectation that Ghosts of Tabor will drive the growth and that Beyond Frames is "only" a publishing partner for the two announced titles expected to be launched next year. This results in a profit before tax forecast of 4,3 MSEK for the current year and 10,1 MSEK for 2025. Considering that most self-produced titles are estimated by us to be launched in 2026, we believe that's when the real profit increase will occur. For 2026, we estimate a turnover and profit before tax of 270 MSEK and 34,4 MSEK, respectively. The significantly improved result according to the forecast comes from the much higher gross margins on self-produced games. Based on our new forecasts, our DCF calculation gives a market value of 600 MSEK or 35 SEK per share. This represents an upside of 65% based on today's stock price.

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