equity analysis-gonnella
TRANSCRIPT
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Equity Analysis: GLUUANTONIO GONNELLA
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GENERAL SUMMARY: GLUU
i. Based in California
ii. Market Cap: $547M
iii. Current price: $4.90
iv. Average Volume: 2.6M
v. Traded on Nasdaq
vi. 2014 Revenue: $223.15 M
vii. 2015 Revenue (expected): $260 M
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INDUSTRY
Venturebeat.com
Size:2013 – $17.5 B2017 – $35.4 B
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INDUSTRY - Continue
Monetization Ranking
Revenue:
1. Asia Pacific – $12.2B
2. USA – $4.9B
3. Western Europe – $3.2B
Average Spend/month:
4. USA - $6.21
5. Western Europe - $4.59
6. Asia Pacific - $4.17
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INDUSTRY - game line up
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GLUU – 5 YEAR FINANCIAL PERFORMANCE
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GLUU – 5 YEAR Free Cash Flow
Used % average to forecast future cash flow% of revenue
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GLUU Game performance
Most popular game performance over releases Hardest part? Estimating Decay rate for games
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GLUU – Game performance, Celebrity
2015 Celebrity gamesKaty PerryKendall and Kylie Jenner
2016 Celebrity gameFill 106.3M social reach gapMost likely sports star
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GLUU Present Value using DCF1. Calculate Beta
2. Market risk premium
3. Calculate WACC
4. Forecast 5-YEAR celebrity games’ revenue ◦ Based on past performance◦ Based on social reach ratio◦ Based on decay ratio
5. Forecast future FCF◦ Based on %sales ratios
6. Compute Present value
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GLUU - Beta Regression line:
Beta=2.37 (B_Historical)
Beta tends to return to mean (B=1):
Beta (B) = B_Historical*0.65+0.35= 1.89
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Market risk premium
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GLUU - WACC
Rf = risk free rate, 2.53% based on 10 year T-Bond average yield for 2014
Rd = 0
Re = Rf + Beta*(Rm-Rf)
WACC = 7.7%
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GLUU – 5 YEAR celebrity games’ sales
1. KP AND KKJ same Rev/Social reach ratio as KKw◦ For 1st (0.56) and 2nd (0.4) quarter after release◦ After 2nd quarter apply 27.5% decay ratio
2. 400M social reach by 2016
3. Bold numbers and highlighted cells◦ Estimated release quarter for big upgrade or new version
4. Each game is growing at 10% over prior release
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NOTE:1. sales numbers used for future FCF is from celebrity games only
2. GLUU will be releasing sports, racing, shooter games along with celebrity games◦ Deer Hunter◦ Tap Sports Football and baseball◦ Eternity Warriors 4◦ Car town◦ 007
3. Non celebrity games could add anything between 70M-140M to 2015 revenue
GLUU - Present Value
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GLUU - Present Value
NO DEBT
97M Shares
2% Rev growth after 2019
WACC = 7.7%
10% celebrity game growth
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NO DEBT
97M Shares
2% Rev growth after 2019
WACC = 7.7%
0% celebrity game growth
GLUU - Present Value
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NO DEBT
97M Shares
2% Rev growth after 2019
WACC = 7.7%
-25% celebrity game growth
Growth was calculated based on today’s share price
GLUU - Present Value
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GLUU Price/Sales ratio GLUU P/S ration 29% undervalued
GLUU fair value to be on par with industry: $6.3
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GLUU – Price Target $6.3 to be on par with industry $12.9 based on celebrity games’ sales ONLY, and 10% growth $9.8 based on celebrity games’ sales ONLY, and 0% growth
My price target $11.3 0% growth for celebrity games Estimating an annual revenue of $70M from other games 130% upside
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GLUU - Risk1. KP and KKJ games don’t do as well as KKw
2. GLUU doesn’t not reach 400M social reach by 2016
3. Mobile games market slows down
4. Celebrity games saturation
If above assumptions occur
5. Price target changed to $6.3 to be on par with P/S industry average1. 29% upside potential
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QUESTIONS?