Gaming Realms’ 2015 final results show a business that continues to build momentum, as revenues more than doubled to £21.2m (2014 pro forma: £9.8m). Growth is being driven by its real money and social gaming (including licensing) verticals, which were up 362% and 294%, respectively. Gaming Realms also recently announced that it has extended its licensing deal with Scientific Games to land-based gaming machines as part of its strategy of taking the Slingo brand into adjacent markets. 2015 adjusted EBITDA losses fell by 30% to £4.1m and the Q1 trading update (revenues up 100% y-o-y) supports our view that the company can break even at the EBITDA level this year.
Gaming Realms’ 2015 revenue (£21.2m) and EBITDA loss (£4.1m) were broadly in line with both its previous guidance and our own forecasts (£21.5m and £4.0m respectively). The slight difference in the revenue was largely as a result of slower than expected game launches at the end of 2015 in the social vertical, which was largely offset by a lower marketing spend. Its proprietary Grizzly platform continues to perform strongly, with 81% of players playing on mobiles and the customer cost per acquisition (CPA) of £79 comparing favourably with its peers.
Gaming Realms’ Q1 trading update revealed early traction in its efforts to maximise the commercial value of the Slingo brand and it now has licensing deals in place with both Zynga in social gaming and Scientific Games in scratch cards and gaming machines. Management reports that there continues to be a good pipeline of potential future deals. While the announcement of such deals is likely to be somewhat lumpy, we believe that the high-margin nature of the revenues coupled with further operational efficiencies as the company continues to scale are supportive of our view that it can move to a positive EBITDA position this year.
2017 continues to be the first year during which we expect meaningful profitability. As a result, we believe 2017 valuation comparisons are instructive. On our forecasts, Gaming Realms trades on a 2017e EV/EBITDA valuation of c 4.2x. This is less than half the average of some of its more established peers. We believe that this discount should begin to materially close following further confirmation that the present business momentum is being maintained, offering the potential for significant share price appreciation.