- The results for the 3Q are very good both in terms of revenues and profits, which originate from a one-off event, i.e. the sale of Bidlogic technology for PLN 4.2 million.
- The value of transaction less the payment due was recognized in revenues, which resulted in their record value in the history of the Company at PLN 13.872 million (increase by 41.2% y/y and 97.7% q/q). As a result, for the first time in seven quarters, Vivid Games generated: positive sales result (PLN 2.709 million vs. PLN 148k loss in Q2 2022 and minus PLN 410k loss in Q3 2021), one of the highest EBIT profit in history (PLN 3.04 million versus PLN 193k in Q2 2022 and minus PLN 63k of operating loss in Q3 2021) and record-breaking net profit (PLN 2.836 million versus PLN 22k in Q2 2022 and minus PLN 87k net loss in Q3 2021).
- Nevertheless, excluding the impact of a one-off event, Vivid Games SA loses a small positive profitability generated after two quarters of 2022, showing the results for the third quarter below our expectations.
- Among the positive factors shaping the value of the Company, we highlight the agreement on the monetization of Knights Fight 2 (November 2022). This game, before the dispute, generated about 15% out of total revenue of the Company. We assume a return to these values from January 2023. â–ª Among the threats we see weakening of the advertising market, a reduction in user spendings and a weaker than a few months ago USD/PLN exchange rate.
- Finally, we increase our valuation from PLN 1.07 to PLN 1.09 per share, due to the change in the valuations of comparative companies, decrease in discount rates and the increase in the residual value.
Expected impact: The Company's results in the third quarter were very good, although they were under a strong, positive impact of a one-off event (sale of Bidlogic technology). This transaction had a significant impact on the Company's margins and its financial position. As a result liquidity increased, debt was reduced (the Company paid 9 out of 12 arrangement installments for bonds) and strengthened equity. However, the exclusion of a one-off transaction presents the Company in a different, less favorable light. While at the level of revenues there were still q/q and y/y increases (above our expectations), at the level of profits Vivid Games generated negative results again. Still the most important cost category of the Company (UA - paid user acquisition) clearly weighs on the final result. At the fundamental level, on the one hand, we see factors positively affecting the Company's revenues (return to monetization of Knights Fight 2), and on the other hand, the lower USD exchange rate against PLN and worse prospects for the development of the mobile games market, including advertising expenditures and users' purchasing behavior, mean that we are slightly lowering our revenue and profit forecasts for the Company. In our forecast, we do not assume significant write-offs at the end of the year. We increase our valuation to PLN 1.09 per share (from PLN 1.07), which results from the increase in the DCF model mainly due to the residual value increase and from the change of companies' multipliers in the comparative method.
GPW’s Analytical Coverage Support Programme 3.0
Analyst
Åukasz Bryl
Tel.: 785 500 874
