Devolver Digital Inc (LON:DEVO) 2021 results demonstrate the strong growth potential ahead of the business. We estimate Devolver delivered 32% organic growth in 2021, well above peers. This positions the company well for 43% organic growth in 2022, driven by a rebounding game release schedule. Devolver’s exceptional growth potential is not factored into its valuation multiples, in our view.
Results ahead of our forecasts: 2021 revenue and EBITDA are expected to be over c. $99.5m and c. $25.0m, respectively, ahead of our original forecasts of $94.5m and $23.9m. We estimate Devolver grew revenue by an impressive 32% excluding acquisitions, ahead of our estimate of 26% growth. EBITDA margin is expected to rise to c. 25%, up from and adjusted margin of 22% in 2020. We raise our 2021 revenue estimate by 6% and EBITDA by 5%.
Strong back catalogue growth: Growth was mostly driven by the back catalogue, as expected. Back catalogue revenue is expected to be c. 70%, up from 61% in 2020 and in line with our estimate of c. 71%.
Growth driver switches in 2022: In contrast to 2021, the majority of growth in 2022 should be driven by new release revenues. (See revised revenue bridge overleaf.) Devolver plans to release 16 titles in 2022 compared to only 8 in 2021, as the company catches up on new releases after partly focusing on Fall Guys in 2021. In addition, the company plans to release a major new title, Shadow Warrior 3, which has a budget more than triple the company’s average.
Growth above peers: The strong 2021 trading update supports Devolver Digital’s growth outlook, which is well ahead of peers. We conservatively forecast revenue grows 43% organically in 2022, supported by a deep and diverse pipeline of over 30 high potential games. Their recent game launches have progressed well and received strong reviews. On the Steam platform, five of the company’s six releases since H1 2021 have received “Overwhelmingly Positive” or “Very Positive” reviews and its average title received 89% positive reviews. (See overleaf.) Over 90% of the company’s games are profitable and the company has achieved 5.5x ROI to date (3.1x excluding Fall Guys).
Valuation: Despite Devolver Digital’s exceptional growth potential, its shares trade at only 26x EV/ EBIT 2022, in line with UK peer group median. In addition to its stronger growth outlook, the company offers more diversified game exposure, a higher rated game portfolio and a pioneering management team: 1) They were named 2021 Publisher of the Year, Indie Publishing Awards, by Gamesindustry.biz, the leading video games industry website. 2) The company has the highest career average Metacritic score (75) amongst a group of major Indie publishers. 3) Their 11-person core senior management has over 250 years of relevant experience.
