Gaming Expansion And 70% Recurring Revenue Will Unlock Future Value

Key Takeaways

• Expanding live-service games and new platform launches are driving recurring, high-margin revenue growth while supporting earnings stability through predictable digital monetization models.
  
• Strong financial health and a diversified strategy enable disciplined acquisitions and reduce risk by broadening the user base and minimizing reliance on single markets.
  
• Heavy reliance on existing games, exposure to legal and currency risks, and intensified competition threaten margins and growth if innovation and successful new releases lag.

Catalysts

Develops, publishes, markets, and distributes games in PC, console, and mobile platforms in Sweden, rest of Europe, North America, South America, Asia, Africa, and the Oceania.

• The successful launch of Palia on consoles has substantially expanded EG7's user base, with over 8 million downloads and a significant increase in daily active users, positioning the title to capture further upside from the global growth in online gaming and digital content consumption. If EG7 can continue scaling its player base in line with broader gaming adoption trends, this could drive material top-line revenue growth.
  
• The implementation of new features and regular content updates for live-service games (such as Palia) is designed to deepen engagement and improve payer conversion rates, leveraging the growth of digital monetization models and increasing opportunities for recurring high-margin revenues over time, likely benefiting EBITDA margins and earnings quality.
  
• A robust live-service and back-catalogue portfolio now contributes over 70% of group revenues and delivers more predictable, recurring revenue streams, providing earnings stability and supporting net margin improvement as the industry continues to shift toward games-as-a-service and subscription models.
  
• A strong net cash position and lean cost structure put EG7 in a favorable position to pursue disciplined M&A opportunities as distressed mid-market studios become acquisition targets; carefully executed deals could accelerate revenue and margin expansion by bringing quality IPs or studios into the portfolio.
  
• EG7's multi-platform and geographic expansion strategy (evidenced by Palia's console launch and ongoing plans for new content and features) increases its addressable market and reduces dependence on any single region or segment, enhancing future revenue growth and smoothing out earnings volatility.

Enad Global 7 Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Enad Global 7's revenue will decrease by 0.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -10.5% today to 12.1% in 3 years time.
• Analysts expect earnings to reach SEK 259.4 million (and earnings per share of SEK 1.8) by about September 2028, up from SEK -222.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.8x on those 2028 earnings, up from -4.9x today. This future PE is lower than the current PE for the SE Entertainment industry at 22.9x.
• 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 7.99%, as per the Simply Wall St company report.

Enad Global 7 Future Earnings Per Share Growth

Risks

• The company's long-term organic growth remains modest (6.7% in the latest quarter, excluding FX and one-off contributions), and recurring revenue is heavily reliant on existing live service and back-catalog titles (77% of group revenue), posing a risk of stagnating revenues if new major hits like Palia fail to sustain momentum or if current games experience player churn or market saturation.
  
• Exposure to significant currency fluctuations has already negatively impacted reported revenues and EBITDA, especially for key subsidiaries (Daybreak and Big Blue Bubble); continued FX volatility or macroeconomic headwinds such as inflation or weaker discretionary consumer spending could further pressure top-line growth and earnings.
  
• Ongoing litigation (e.g., EverQuest copycat issue) has resulted in underperformance for important titles and injects uncertainty, with potential legal costs, lost revenues, and negative impact on net margins or earnings should outcomes be unfavorable or further disrupt user bases.
  
• The overall mid
• and lower-tier gaming market remains oversupplied and capital-constrained, hindering the success of M&A-driven growth; inability to identify or integrate value-accretive acquisitions, or potential for prolonged underperformance and restructuring charges from past or future M&A, could weigh on margins and future earnings.
  
• Intensifying competition from large publishers and high-quality indie games, alongside the rapid evolution of gaming technology (cloud, AR/VR, AI), risks leaving Enad Global 7 behind if it cannot keep pace with innovation, which may require high, ongoing development expenditures and could compress margins or erode long-term profitability if not matched by revenue growth.

Valuation

• The analysts have a consensus price target of SEK30.0 for Enad Global 7 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 SEK2.1 billion, earnings will come to SEK259.4 million, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 8.0%.
• Given the current share price of SEK12.2, the analyst price target of SEK30.0 is 59.3% 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.