tinyBuild Inc Building momentum (Analyst Interview) (LON:TBLD)

tinyBuild Inc (LON:TBLD) is the topic of conversation when Bob Liao talks to DirectorsTalk. The company AGM statement indicates strong progress on agreements with distributors, mining the back catalogue and developing interest in planned releases. provides us more details into these growth drivers, explains how this impacts his view on the company’s ability to meet 2021 expectations and expands on long-term growth drivers and Bob´s view on the outlook.

The AGM statement indicates strong progress on agreements with distributors, mining the back catalogue, developing interest in planned releases and attracting talent. The update increases our confidence in tinyBuild’s ability to at least meet expectations.

tinyBuild indicated that development agreements from distribution partners have exceeded expectations. These increasingly important agreements provide tinyBuild with visibility in the form of minimum revenues in advance of game release. The rising number of distribution platforms (e.g. Netflix) is increasing competition and boosting demand for quality content from developers and publishers.

The company indicated that back catalogue are performing strongly. tinyBuild has been able to successfully mine its back catalogue for additional revenue by releasing downloadable content (DLC) for popular titles and by porting titles onto additional platforms (e.g. Totally Reliable Delivery Service on Steam and Secret Neighbor on PS4 and iOS). In addition, pre-releases are seeing high downloads and encouraging KPIs (e.g. tinyKin and Hello Neighbor 2). 

We believe tinyBuild now appears positioned to at least meet 2021 expectations without depending on any single large hits. The company’s release schedule remains H2 weighted but its strong progress on development agreements with distribution partners, back catalogue revenues and KPIs for its early releases have given tinyBuild increased confidence. Continued strong trading could allow the company to invest more time and resources in game quality and platform availability to improve revenue outlook for 2022.

The company’s strengthening pipeline also indicates an improving longer-term outlook. tinyBuild started the year with 23 games in its pipeline and has released four of the games to date. But the company has already signed seven new games to increase its pipeline to 26 games. The company’s pipeline remains over half the size of its back catalogue. 

The company has been able to attract talent and retain staff to support an accelerating long-term outlook. tinyBuid grew its headcount by 16% to 166 from 147 at the beginning of the year. This has been helped by management’s favourable employment practices. The company has implemented policies against crunching, the industry practice of overworking developers to meet targets, and gifted one extra week of holiday to all direct employees. tinyBuild low single-digit churn, compared to an estimated 15.5.% across the industry.

Valuation: We believe today’s confident trading update could reverse recent price falls. Shares trade in line with UK peers while offering significantly higher earnings growth (EBIT 21-23 CAGR: 28% v 20%) and margins (Ave EBIT 21-22: 35% v 22%). We see the potential for earnings upgrades and accretive acquisitions to drive shares higher.

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