Today we have an extremely speculative idea.: take stock of mobile game developer Nexters (NASDAQ: WHERE), to capitalize on the growth of this business.
Growth potential and validity: 22% behind 12 Months; 35% behind 2 of the year; 15% per annum during 15 years.
Why stocks can go up: mobile games are the future. And the future is bleak.
How do we act: take now 7,37 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
If you want to be the first to know, did the investment work?, subscribe: as soon as it becomes known, we will inform.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark: as with the investment idea as a whole, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
The company has been listed on the stock exchange since the summer of this year - and it was born as a result of a merger with SPAC. So there is not much information about her - basically we will focus on the document on the merger of Nexters with SPAC.
This is a Russian company, but, how is it, its headquarters in Cyprus. Founders and core team of a company from the Russian Federation, SPAC also has Russian founders.
The company makes mobile games - and they are probably familiar to you, even if you haven't played them: Throne Rush ("Battle for the throne"), Island Experiment, Chibi Island ("Island Adventure") и Hero Wars ("Chronicles of Chaos").
According to the merger document, the company's revenue is as follows:
- Selling virtual items in games - 94,2%.
- Advertising in games - 5,8%.
Revenue by country and region:
- USA - 37%.
- Europe - 24%.
- Asia - 15%.
- The countries of the former USSR - 16%.
- Other, unnamed regions — 8%.
The company is unprofitable: the final margin in the last quarter is negative - minus 15,8% from proceeds.
Arguments in favor of the company
Fell down. Now the company is cheaper by a third, what did it cost in august. And stocks are much cheaper 10 $, which were worth the shares of the original SPAC, - so you can now pick stocks with the expectation of a rebound.
Because life is a game. The main arguments for can be found in our review of Activision Blizzard: people in the world will play more and more, and the mobile segment will show the best growth. Nexters revenue model is morally terrible: it is based on spending real money in the virtual space. And that's why it will be successful: world of the future, as 2020 has shown, waiting for a variation on the theme of "Black Mirror" - people will play games, distracted from the futility of existence. So such businesses, как Nexters, as sad as it is, great future. This is also indicated by the growth rates: Last quarter revenue increased by 73% compared to the same period 2020, and all revenue in 2020 was almost 3 times higher, than in 2019.
Size matters. The company has a capitalization of $ 234 million - which is very, very small.. This could lead to an influx of retail investor crowds into stocks – and the effect of such an influx could be significant..
Many beautiful numbers. The company shows many beautiful growth metrics, which demonstrate, that she is better than average in her niche:
- conversion of players into paying users — 5%, it's in 1,4 times better, than competitors;
- the average amount spent by players within the game in 2,5 times higher, than competitors;
- revenues from one paying user on average per month in 1,5 times the industry average.
I think, that such information will help attract many investors into the stock. In my experience, many investors fall for this, so all this mathematical rhetoric quite successfully disguises the company's unprofitableness.
Cheap. According to information from the merge document, Global mobile gaming revenue is approximately $100 billion, And, By the way, he will grow. The company's market share is approximately 0,39%, despite the fact that its capitalization is 0,23% market. According to this metric, the company can be considered undervalued.: for fast-growing unprofitable startups, the norm is considered to be cost much higher than their market share. Nexters share price to earnings per share ratio below one, which is very, very cheap by IT and not only standards.
Can buy. Considering all of the above, the company may well be bought. I wouldn't be surprised, having learned, that Activision Blizzard will be the buyer: it has a very strong and rapidly growing mobile games division.
What can get in the way
Genesis. SPAC origins of a company can hide various issues: fraud cases among SPAC are well known. However, very likely, what Nexters' SPAC merger chose to save on a conventional IPO.
Another question is what, being a Cyprus company, Nexters, in the event of a conflict with American shareholders, can use its Cypriot residence and become inaccessible to the decisions of the American court - and this will entail serious consequences for quotes. However, this is just a theory.
Unprofitableness. Companies, losing money, a priori volatile, there are always risks of bankruptcy. By investing in these stocks, you invest in a startup - with all the consequences.
Political risks. I think, that in the case of Nexters it is also useful to take into account the rampant Russophobia in the United States, so the company may well fall under the distribution of the American authorities during the next witch hunt for the de facto "Russian" component. Even if no political charges are brought against the company itself, there is a chance, that it will be shunned by large institutional investors.
What's the bottom line?
Shares can be taken now by 7,37 $. And then there are several options.:
- wait for growth to 9 $. I think, that we will reach this level in the next 12 Months;
- wait for the price 10 $, who asked for shares back in August. Here, probably, will have to wait 2 of the year;
- keep shares in sorrow and joy 15 years.
But, certainly, should be understood, that this idea is extremely volatile and risky, so if you are not ready to endure strong fluctuations in quotes, it's best to stay away from these stocks, so as not to complain about life in the comments to this material.
