Power Rangers Mighty Force And RuPaul's Drag Race Match Queen Will Strengthen Future Prospects

Key Takeaways

• Successful game launches and strategic platform choices position East Side Games for revenue growth and improved profit margins.
  
• Enhanced monetization strategies and share buybacks are designed to boost revenue and improve market valuation.
  
• High reliance on a few successful titles and share repurchases over investments could limit growth, while operational disruptions and player fatigue pose additional risks.

Catalysts

Through its subsidiaries, develops, operates, and publishes free-to-play casual mobile games in Canada, the United States, Europe, and internationally.

• The launch of Power Rangers Mighty Force in Q3 immediately impacted East Side Games with a strong new player base and promising ROAS numbers. As the highest-ARPDAU game in their portfolio, continued feature rollouts could drive revenue and increase profit margins.
  
• The increased frequency of season passes boosted revenue by nearly 40% across several games, showing potential for higher revenue growth if this strategy is maintained or expanded.
  
• With the Epic Games Store offering a favorable 12% revenue cut, launching games like Trailer Park Boys: Greasy Money on this platform presents a significant opportunity to enhance revenue by reducing app store fees.
  
• The release of RuPaul's Drag Race Match Queen in early 2025, leveraging East Side Games' experience with RuPaul's Drag Race Superstar, is expected to capitalize on high retention and monetization in the match genre, potentially increasing future earnings.
  
• Continued share buybacks are intended to reduce the float and improve market valuation, with the potential to increase earnings per share as cash is strategically deployed to capitalize on perceived undervaluation.

East Side Games Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming East Side Games Group's revenue will grow by 11.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.3% today to 13.0% in 3 years time.
• Analysts expect earnings to reach CA$15.2 million (and earnings per share of CA$0.17) by about February 2028, up from CA$3.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.7x on those 2028 earnings, down from 9.9x today. This future PE is lower than the current PE for the CA Entertainment industry at 18.7x.
• Analysts expect the number of shares outstanding to decline by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.37%, as per the Simply Wall St company report.

East Side Games Group Future Earnings Per Share Growth

Risks

• High reliance on a limited number of successful titles, such as Power Rangers Mighty Force and RuPaul's Drag Race Superstar, could mean that underperformance by these games or the inability to replicate their success with new titles could negatively impact future revenue and earnings growth.
  
• Significant cash resources are being allocated towards share repurchases rather than direct investments into game development or marketing, which could potentially restrict future growth opportunities and impact long-term revenue and earnings potential.
  
• Although the partnership with the Epic Games Store offers a more favorable revenue-sharing model, the current limited availability of the Epic Games Store on platforms primarily accessed by the company’s target market can restrict the immediate positive impact on revenues.
  
• Any operational challenges or disruptions in the co-development partnerships across varied international locations (e.g., Vietnam, Argentina, Australia, and the U.S.) could hinder game development and release schedules, potentially affecting revenue timelines and net margins.
  
• The focus on expanding season pass revenues and increasing its frequency across their games could lead to player fatigue, resulting in diminishing returns and potentially impacting both user engagement and future revenues.

Valuation

• The analysts have a consensus price target of CA$1.5 for East Side Games Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$116.1 million, earnings will come to CA$15.2 million, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of CA$0.45, the analyst price target of CA$1.5 is 70.0% 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.