Rising Global Middle Class Will Expand Digital Entertainment Markets

Key Takeaways

• Expanding proprietary IP portfolio and strong back catalog drive recurring revenues and higher margins, positioning for long-term growth amid rising global digital entertainment demand.
  
• Strategic moves into new audience segments, flexible publishing, and targeted acquisitions enable efficient monetization and scalable growth in a consolidating market.
  
• Heavy dependence on volatile new releases, aging back catalog, and high competition expose Everplay to unpredictable revenues, rising costs, and margin pressures amid uncertain market conditions.

Catalysts

Develops and publishes independent video games for digital and physical market in the United Kingdom.

• Everplay's diversified and expanding portfolio of proprietary IP-now at 37% of revenue and slated to grow further-positions the company to capitalize on rising discretionary digital entertainment spending from a growing global middle class, supporting increased revenue visibility and long-term earnings growth.
  
• The group's strong back catalog performance, with nearly 50% of revenues from titles 5 years old or more and record engagement in legacy franchises, is likely to deliver resilient recurring revenues and higher margins, benefiting from demographic shifts toward interactive, community-driven digital experiences.
  
• Entry into new audience segments-particularly with StoryToys' strategy to address older children and leverage major partnerships such as Apple-enables further user growth by targeting broader age groups in regions with increasing internet penetration, driving future top-line expansion.
  
• Everplay's operational focus on portfolio synergy, lifecycle management, and continued investment in flexible publishing and platform diversification (including upcoming Nintendo Switch releases and tapping into Roblox/Fortnite) enhances monetization opportunities and efficiency, supporting improved net margins.
  
• Strong cash generation and a robust balance sheet, alongside prudent, accretive M&A targeting underutilized back catalogs and IP, provide strategic optionality to scale rapidly and capture market share in a consolidating industry, with positive implications for both revenue growth and free cash flow.

everplay group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming everplay group's revenue will grow by 7.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.8% today to 16.6% in 3 years time.
• Analysts expect earnings to reach £32.5 million (and earnings per share of £0.2) by about September 2028, up from £21.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as £27 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.1x on those 2028 earnings, down from 25.8x today. This future PE is greater than the current PE for the GB Entertainment industry at 15.0x.
• Analysts expect the number of shares outstanding to decline by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.2%, as per the Simply Wall St company report.

everplay group Future Earnings Per Share Growth

Risks

• The sharp 5% decline in Team17 division revenues in 2024, driven by underperforming new releases and the deferral of several titles, highlights the execution risks inherent in relying on continuous hit releases and suggests new title revenues are volatile; this could lead to future revenue unpredictability and margin compression if such slippage or underperformance becomes a recurring trend.
  
• Everplay's heavy market exposure to highly competitive and saturated digital gaming storefronts (e.g., 19,000 Steam launches in 2024), combined with lower visibility and discoverability for new games, increases the risk of content fragmentation and higher customer acquisition costs, threatening both top-line revenue growth and operating margins long-term.
  
• With nearly 50% of revenues coming from titles older than five years and a consistent dependence on back catalog performance (averaging 76% of revenue since 2018), there is a latent risk that audience fatigue or technological obsolescence could erode back catalog cash flows, decreasing revenue visibility in the future and tightening margin buffers.
  
• The company's growth strategy is increasingly reliant on M&A and new label launches (e.g., StoryToys expansion), yet the stated caution against "rushing into M&A" combined with unannounced pipeline uncertainties exposes Everplay to potential inorganic growth disappointments or failed integrations, which could dilute profitability and impair earnings growth in case of poor execution.
  
• Despite the company's positive outlook, management points to a challenging and slowing market backdrop post-COVID, increased platform holder bargaining power (e.g., Nintendo Switch, console cycles), and the risk of blockbusters (like GTA 6) drawing consumer attention away from Everplay's releases, indicating macro and industry headwinds that could limit revenue growth or compress net margins if market conditions soften further.

Valuation

• The analysts have a consensus price target of £4.38 for everplay group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £4.8, and the most bearish reporting a price target of just £3.9.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £195.5 million, earnings will come to £32.5 million, and it would be trading on a PE ratio of 25.1x, assuming you use a discount rate of 9.2%.
• Given the current share price of £3.91, the analyst price target of £4.38 is 10.7% 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.