Bullish View That Future AAA Outsourcing And Gaming Demand Will Drive Strong Expansion

Catalysts

About PlaySide Studios

PlaySide Studios is a diversified video game developer and publisher focused on original IP, AAA work for hire and high profile licensed franchises across PC, console, VR and mobile.

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

• The exceptional prelaunch traction of MOUSE, including more than 1 million wish lists and a multi platform rollout across Steam, PlayStation, Xbox and Nintendo Switch, positions PlaySide for a step change title that can materially expand revenue and operating cash flow from FY 2026 onward.
• Deepening exposure to major entertainment IP such as Game of Thrones within real time strategy, where PlaySide already has proven execution credentials, should support higher margin publishing economics and more resilient earnings as fans seek premium franchise based content across platforms.
• The global shift by AAA studios toward outsourcing after sustained layoffs and project cancellations is increasing the volume and scale of co development and work for hire opportunities, giving PlaySide a growing, higher quality contract pipeline that can underpin recurring revenue and support margin expansion as utilisation improves.
• Rising demand for gaming across handheld and hybrid devices, including the new generation of Switch and other portable consoles, aligns with PlaySide’s multi platform strategy for MOUSE and Dumb Ways to Die, creating incremental unit sales potential and higher lifetime earnings from each title.
• The streamlined post restructure cost base, focused slate of three core original IP pillars and disciplined project selection mean that any recovery in work for hire and success of key launches should drop through at a higher rate to EBITDA, accelerating a return to positive net margins and growing earnings.

Assumptions

This narrative explores a more optimistic perspective on PlaySide Studios compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming PlaySide Studios's revenue will grow by 17.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -24.9% today to 22.3% in 3 years time.
• The bullish analysts expect earnings to reach A$17.6 million (and earnings per share of A$0.04) by about December 2028, up from A$-12.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$5.1 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.9x on those 2028 earnings, up from -8.2x today. This future PE is lower than the current PE for the AU Entertainment industry at 43.7x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.52%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The business remains heavily dependent on a small number of hit driven original IP titles such as MOUSE, Game of Thrones and Dumb Ways to Die, so any underperformance at launch, weaker than expected wish list conversion or poor player reception could materially reduce expected sales trajectories and leave revenue and earnings well below optimistic forecasts.
• Structural volatility in AAA publishing budgets, including ongoing layoffs, shifting strategies, longer approval processes and a growing preference for short prototype engagements over large multi year contracts, could result in a structurally lower Work for Hire run rate and thinner margins. This may limit top line recovery and constrain EBITDA improvement.
• The company has acknowledged that original IP development timelines have outpaced cash flow visibility and that its recent investment cycle has been out of step with the balance sheet. Any delay in launches, weaker cash generation from new games or slower Work for Hire signings could put renewed pressure on liquidity, forcing further capital raisings that dilute shareholders and delay a return to positive net margins.
• Industry wide competition for players’ attention from other games, social media and streaming platforms is intensifying. If PlaySide is unable to sustain ongoing post launch content, transmedia relevance and marketing effectiveness across multiple platforms, its titles may struggle to maintain engagement and pricing power over time, eroding lifetime revenue per title and weighing on long term earnings growth.
• Expanding across more platforms, including handheld consoles and potential streaming or subscription partners, increases execution complexity around certification, performance optimization and live operations. Any missteps in quality, timing or platform relationships could damage the studio’s reputation, compress margins through higher rework and support costs and dampen future Work for Hire and publishing revenue.

Valuation

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

• The assumed bullish price target for PlaySide Studios is A$0.6, which represents up to two standard deviations above the consensus price target of A$0.52. 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 bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$0.6, and the most bearish reporting a price target of just A$0.43.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be A$79.0 million, earnings will come to A$17.6 million, and it would be trading on a PE ratio of 17.9x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of A$0.22, the analyst price target of A$0.6 is 63.3% 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.