Mobile Gaming Expansion And Brand Partnerships Will Boost Digital Reach

Key Takeaways

• IP-driven titles, prominent brand partnerships, and robust live operations are fueling recurring revenue growth by expanding global reach and increasing player retention.
  
• Enhanced marketing efficiency and capital flexibility from tax credits and share buybacks support reinvestment, boosting margins, user acquisition, and shareholder returns.
  
• Dependence on licensed IPs, platform policies, and marketing tactics creates risks for revenue stability, profitability, and long-term user retention in a competitive mobile gaming market.

Catalysts

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

• Strong early metrics and monetization from recently launched IP-driven titles like RuPaul's Drag Race Match Queen and upcoming global launches such as Squishmallows Match-enabled by increased smartphone usage and in-app purchase trends-are likely to drive higher top-line revenue growth as they scale, tapping into an expanding global mobile gaming audience.
  
• Direct partnerships with highly recognized media and toy brands (e.g., RuPaul, Squishmallows, Trailer Park Boys) enhance user acquisition efficiency and long-term engagement, supporting sustained increases in recurring digital revenue streams through both in-app monetization and live content updates.
  
• Continued investment and innovation in full-funnel, cross-platform marketing strategies-including influencer, creator, and cultural moment integrations-help boost organic user acquisition and lower cost per install, which is expected to positively impact net margins and overall earnings as user acquisition efficiency improves.
  
• Expanding the company's proprietary features and live operations (season passes, new minigames, event-driven content) across its portfolio increases player retention and ARPDAU, indicating the ability to capture a greater share of global digital entertainment spend, supporting both revenue and operating leverage.
  
• Access to enhanced Canadian tax credits and ongoing share buybacks provide the company with additional capital flexibility, enabling further reinvestment into new games and user acquisition, which is likely to support future earnings growth and improve shareholder returns.

East Side Games Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming East Side Games Group's revenue will grow by 14.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -6.8% today to 19.1% in 3 years time.
• Analysts expect earnings to reach CA$22.6 million (and earnings per share of CA$0.28) by about September 2028, up from CA$-5.4 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 4.0x on those 2028 earnings, up from -5.7x today. This future PE is lower than the current PE for the CA Entertainment industry at 10.9x.
• Analysts expect the number of shares outstanding to decline 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 7.92%, as per the Simply Wall St company report.

East Side Games Group Future Earnings Per Share Growth

Risks

• Increased reliance on licensed intellectual properties such as RuPaul's Drag Race, Squishmallows, and Trailer Park Boys exposes the company to unpredictable licensing costs, contract renewals, and potential disputes-risking gross margins and the stability of future revenue streams.
  
• Intensifying competition for user acquisition in the mobile gaming sector is driving up marketing and acquisition costs, which could pressure net margins and make sustainable earnings more challenging as larger publishers with deeper pockets compete for the same audiences.
  
• The company's primary focus on the mobile platform leaves it vulnerable to policy changes by app stores (Apple, Google) related to fees, discoverability, or user acquisition rules, potentially reducing revenue or increasing costs.
  
• Ongoing need to continually release new successful games and updates to existing titles introduces execution risk; any failure to consistently deliver hit games or effectively monetize new launches could lead to inconsistent revenue and earnings growth.
  
• Heavy emphasis on culturally timed marketing campaigns and brand partnerships to drive installs and engagement may limit recurring user retention, resulting in heightened sensitivity to entertainment industry cycles and potentially volatile top-line revenues.

Valuation

• The analysts have a consensus price target of CA$1.25 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$118.0 million, earnings will come to CA$22.6 million, and it would be trading on a PE ratio of 4.0x, assuming you use a discount rate of 7.9%.
• Given the current share price of CA$0.42, the analyst price target of CA$1.25 is 66.4% 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.