Heavy Reliance On Key Titles Will Test Outsourcing And Transmedia Potential Over Time

Catalysts

About PlaySide Studios

PlaySide Studios develops and publishes video games across original IP and Work for Hire contracts for major global publishers and platforms.

What are the underlying business or industry changes driving this perspective?

• Although MOUSE has crossed 1 million wish lists and is set to launch across PC and multiple consoles, execution risk around polish, certification and post launch support could limit how much of that interest converts into durable revenue and earnings.
• While the new console cycle and strong growth in handheld devices, including the latest Switch, point to more demand for fresh content, delays in platform approvals or weaker than expected uptake for PlaySide titles on these devices could mute revenue and pressure margins.
• Although large publishers are laying off staff and increasingly relying on outsourcing, which is supportive for co development and Work for Hire, shorter contracts, prototype heavy briefs and tighter pricing can cap Work for Hire revenue and keep gross margins below prior levels.
• While the company has streamlined its slate to three core original IP pillars and identified at least A$5 million in operating cost savings, any slip in launch timing or underperformance of these few key titles would leave EBITDA and operating cash flow heavily exposed.
• Although transmedia heavy IP such as Game of Thrones and Dumb Ways to Die aligns well with media companies seeking to extend franchises into games, slower deal making or smaller than hoped licensing structures would limit upside to high margin revenue and earnings.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on PlaySide Studios compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming PlaySide Studios's revenue will grow by 6.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 2.8% today to 24.8% in 3 years time.
• The bearish analysts expect earnings to reach A$12.3 million (and earnings per share of A$0.03) by about July 2029, up from A$1.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.1x on those 2029 earnings, down from 43.1x today. This future PE is lower than the current PE for the AU Entertainment industry at 43.1x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.46%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• PlaySide relies heavily on a small number of major titles such as MOUSE, Game of Thrones and the Dumb Ways to Die console game. Any launch delays, weaker than hoped reception or poor review scores could limit original IP revenue and keep EBITDA and earnings under pressure for longer than expected.
• The recent industry pattern of longer sales cycles, more cautious AAA publishers and a shift toward smaller prototype contracts could persist. This would constrain Work for Hire growth, compress margins on new contracts and reduce visibility over future revenue and operating cash flow.
• The business has been investing heavily ahead of launches, with A$22 million of cash costs in FY 2025 tied to future titles and an EBITDA loss of A$7.5 million including restructuring. If upcoming releases do not quickly translate into strong cash inflows, the current A$16 million pro forma cash balance could come under strain and delay a return to positive earnings.
• Competition for player attention from other games, social media and streaming services, combined with the hit driven nature of gaming and the need for ongoing post launch content, means that even well reviewed titles can fade quickly. This would limit recurring revenue and weigh on net margins over time.
• Secular trends such as rising handheld and console adoption and media groups pushing transmedia IP can support outsourcing demand. However, if PlaySide cannot consistently win larger, higher margin AAA contracts or maintain pricing power in a more competitive RFP process, Work for Hire may remain more short term and lower margin, capping revenue growth and earnings improvement.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for PlaySide Studios is A$0.28, which represents up to two standard deviations below the consensus price target of A$0.34. This valuation is based on what can be assumed as the expectations of PlaySide Studios's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$0.4, and the most bearish reporting a price target of just A$0.28.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be A$49.6 million, earnings will come to A$12.3 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 8.5%.
• Given the current share price of A$0.11, the analyst price target of A$0.28 is 60.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.