- 2023 revenue and profit expected to be significantly lower than expected
- Shares have lost over 95% since floating in 2021
- Review of current games and pipeline of titles
Shares in video game developer Tinybuild (TBLD:AIM) crashed 75% on Thursday (29 June) to 8.4p after issuing a profit warning and announcing the resignation of chief financial officer Tony Assenza for personal reasons.
The shares floated on AIM in March 2021 at 169p after raising £154.4 million of which £36.2 million was for the company and valuing the firm at £340.6 million.
Investors seem to be treating the problems at Tinybuild as a company-specific issue with no read-across for peers Frontier Developments (FDEV:AIM) and Team17 (TM17:AIM) which saw their share prices gain around 1%.
WHY HAS THE COMPANY WARNED?
The company said it expects a ‘material’ reduction in full year revenue to 31 December 2023 and a ‘more acute’ fall in EBITDA (earnings before interest, tax, depreciation and amortisation) following a significant downsizing in the amount of investments in non-AAA games, resulting in a lower contribution from platform deals.
Berenberg notes that revenue from distribution platforms is higher margin and therefore the fall will have a disproportionate impact on profitability.
Making the situation worse in the short term is Tinybuild’s decision to invest in new larger-budget own-IP (intellectual property) with high replayability.
The company said a significant increase in development cost amortisation and higher percentage payment to developers of royalties will result in a ‘more substantial’ reduction in adjusted EBITDA for 2023 and 2024.
In addition, the acquisition of Red Cerberus and Versus Evil in November 2021 has not lived up to expectations.
Tinybuild said year-end net cash is now anticipated to be between $10 million and $20 million, down from prior expectations of ‘at least’ $26.5 million.
WHAT IS THE FINANCIAL IMPACT?
Leisure analyst at Shore Capital, Katie Cousins said prior to a discussion with management she expects to cut her 2023 adjusted EBITDA forecast by 63% to $10 million.
Analysts at Berenberg said: ‘Valuing the business is clearly challenging given the magnitude of the cut to numbers. Ultimately, we believe much of the remaining value in the business is in the broader expertise and platform that has been developed, rather than in the near-term financial delivery, with much attention on the rebuild plans of the new CFO.’
Tinybuild announced that Assenza will be replaced with immediate effect by Jaz Salati who is head of mergers and acquisitions and investor relations. Michael Schauble has been appointed chief commercial officer with immediate effect.
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