Beyond Frames - Report comment Q4 2023

For the fourth consecutive quarter, the company was able to show significant sales growth. This despite the fact that the video game market is currently undergoing a market correction with layoffs and studio closures. In Q4, the company achieved a turnover of approximately 40,4 MSEK, which was almost ten times higher compared to the same period the previous year (4,2 MSEK).  In 2023 the revenue amounted to approximately 136,9 (24,8) MSEK which also was the highest revenue in the company's history. The growth can largely be explained by the continued strong performance of Combat Waffles' Ghosts of Tabor, where Beyond Frames is the publishing partner. The game has been a great success since its launch in March 2023, with over 120 000 monthly active players and over 10 MUSD in total revenue. In addition to this, other games in the portfolio, as well as received project funding for games in development, have also contributed positively to the growth. As the company has grown, the cost of goods sold (similar to previous quarters) has increased significantly.  Capitalized costs increased to 9,2 (4,9) MSEK during the quarter. However, both personnel costs and other external costs were slightly lower compared to the comparative period due to good cost control. Thanks to the scalability of the company's business model and the increase in turnover, the company achieved a positive EBITDA of 3,4 MSEK (including shares of profits in associated companies), compared to -5,2 MSEK for the same period the previous year. For the full year, EBITDA amounted to 9,7 (-15,1) MSEK. Cash flow was positively affected by the earnings development, and operational cash flow increased to 11,6 (-12,3) MSEK. At the end of the quarter, Beyond Frames had a cash balance of approximately 22 MSEK.

The XR hardware market continues to show strong growth. For example, during the quarter, Meta's business unit Reality Labs (which includes Meta Quest 2 and 3) achieved revenue of over 1 billion USD for the first time. Additionally, Apple launched their Apple Vision Pro in the USA on February 2, 2024. Currently, Beyond Frames has six games in production, expected to be launched in early 2026. One of the games is based on a global media franchise, which generated over 1 billion USD in 2023 alone. The game will be both developed and published by Beyond Frames. The plan is also for this game to be partly financed by the company and additional financing for the project is currently being sought. Furthermore, one of the world's most popular games (Ghosts of Tabor) was launched on the Meta Quest Store in February 2024 after being in "early access" on Meta's App Lab. The game is currently fifth on the Meta Quest Store's bestseller list and has for example won the "Game of the Year" award. Due to the success in the collaboration with Combat Waffles, the company has announced that it will also be the publishing partner for their two upcoming titles, GRIM and Silent North. These titles are expected to be launched sometime in 2024 and 2025, with the plan to initially be in "early access" before transitioning to the main stores. The work to expand the business to also include PC and console games continued during Q4.

For 2024 and 2025, we forecast continued strong growth for the company, mainly driven by Ghosts of Tabor. As this game will be launched on Playstation VR2 and Pico later this year, we believe there are conditions for even higher growth. However due to a somewhat low visibility in the upcoming game launches in 2024 and 2025, we choose to maintain the revenue forecast for 2024 and lower the estimated revenue for 2025 to just over 213 MSEK. The positive earnings development during the year has occurred despite the gross margin developing considerably worse than expected. For 2023, it was only 19%, compared to our forecast of 22%. This is mainly due to the high sales of Ghosts of Tabor, which has a lower gross margin than self-produced titles. As Ghosts of Tabor is expected to drive growth in the coming years, we therefore lower our gross margin forecast to 21% and 23% for 2024 and 2025, respectively. This results in an EBT of -6,3 MSEK for the current year and 4,6 MSEK for 2025. Considering that several self-produced games are expected to be launched in 2026 - one of which is based on a global media franchise that has generated billions of USD in revenue - we believe that the company's positive development continues during this year. For this reason, we forecast revenue of approximately 240 MSEK and an EBT of 19,6 MSEK for 2026. That represents a growth of 15% and 320% compared to 2025, respectively. According to our forecast, the high profit growth comes from significantly higher margins on self-produced titles. With our new forecast and by using a DCF-calculation, we obtain an estimated fair value of approximately 510 SEK or 30 SEK per share. This would imply a potential upside of 50% based on today's stock price. 

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