Video Game Candidates #2: Team17

23rd Apr '20 by Jack Brumby

11 comments 4562 reads

Of all the listed UK video games companies, perhaps Team17 (LON:TM17) is the standout success in terms of both share price performance and sustained high levels of financial growth. Since being founded in 1990, the group has grown to a market cap of nearly three quarters of a billion pounds with annual sales of nearly £62m.

We can see TM17 has outperformed the rest of the set I’m looking at over the past two years, with much of that outperformance coming in 2020.

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Team17 is a video games label and creative partner for indie developers - the group supports both owned first party IP and third party IP, and typically receives a fixed revenue share.

After becoming too dependent on its flagship Worms IP, Team17 restructured and refocused a couple of years ago before listing in 2018. Today, its areas of expertise are:

Product acquisition: identifying and partnering with highly creative indie developers to help create quality titles.

IP & product incubation: a 100+ employee internal creative development studio has been established to build up TM17’s own-IP content library.
Go-to-market execution: the group promotes its games on digital distribution platforms through sales, marketing, events, social media and other avenues.
Lifecycle management: monetising its growing back catalogue via dynamic price management, incremental downloadable content, promotional planning and strategic additional platform releases.

Some 90% of TM17’s revenues are generated from digital sales, making for a high level of control over pricing and game lifecycle management, with minimal additional development costs post launch.

This strikes me as the right strategy - in a decade’s time, surely everybody will be digitally downloading their games? It is more cost effective for all parties involved and it also gives companies like TM17 way more scope to build brands and interact with customers.

Team17 has released over 100 premium games during its history including the iconic and well-established Worms series, as well as Overcooked and The Escapists. Some of these franchises have turned into real IP powerhouses. Worms generated approximately £5 million in annual revenue between 2009 and 2017 - so still going strong long after its original release in 1995.

The Group’s diverse portfolio of owned and third party IP, coupled with its effective digital marketing and lifecycle management, means back catalogue sales are an increasingly large and important part of revenue.…

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Ken Cromb

23rd Apr '20

Excellent article - I'm a big fan of Team17 (LON:TM17) - but shouldn't that be 3/4 billion?

Thornabian

One thing I would add which I think does justify the high earnings multiples is that they used the IPO cash to build several IPs but almost all are on the same game infrastructure and dynamics but with different themes, making them very efficient to make, improve, update and adapt across the board with the same developers.

For example, Escapists has the same dynamics as Survivalists and from a build perspective is very similar but the theme and what the characters do are very different. This is a very smart move for a games developer and allows a lot of leverage when developing over their 6 titles coming out in 2020 and also to create sequels.

Sorry, correction, 10 new games in 2020.

David Appleby

I usually buy through trader 212 but it seems you can`t get team17 stocks on there ?

Any advice on better platforms with wider variety of stocks would be appreciated

Jack Brumby

Ken - yes, thanks!

Rusty2

Trader212 does not trade some Aim stocks even large ones such as Burford Capital (LON:BUR).

Better platform you could try HL but more expensive.

But most platforms should be able to trade AIM shares.

WDWombat

There is an article from Tempus of The Times in today's (Thurday 23rd) edition on UK game related stocks - Team 17, Codemasters, Frontier Developments, Keyword Studios and Sumo. The table showing comparative sales and PTP is very broadbrush and in some senses very misleading but the comparative price chart clearly shows how Team 17 has been easily the outstanding performer since the beginning of 2018.

The conclusion 'Advice Buy Why The sector, already growing rapidly, is one of the few likely to be a beneficiary of the coronavirus

This begs a few questions as to the real changes when people are back to work and retailers open again, but it seems a reasonable to posit that there will be more gamers and more online business. And as we know, the sector should continue to evolve amd grow. I would also like to point out that there are a number of very good or very interesting or very big game companies listed overseas, some of which can be bought in ADR form in the US - as well as US domiciled stocks. These include the giant console companies Nintendo, Sony, and Microsoft and Electronic Arts amongst the big game developers. There is also the US listed VanEck Vectors Video Gaming and eSports ETF (ESPO) which has performed, it seems, rather solidly.

https://www.cnbc.com/2020/04/1...

arfournier

I far prefer Team17 (LON:TM17) to Keywords Studios (LON:KWS). The latter is an outsourcer and that usually means that their services will be under pricing pressure hence the declining operational margins. Maybe its a blip and that they will be immune to that somewhat since they seem to cover the spectrum of ancillary services for the industry and a one-stop-shop has some value.

I held Frontiers Development for quite a while but sold since I don't like their growing reliance on external IP. The IP holder is usually the one that captures most of the value and if the IP is a bust its a costly mistake to Frontiers. I have no opinion on the other London listed video game makers so looking forward to your articles.

LimaWhiskey

24th Apr '20

When the COVID-Crash came, took the opportunity to pick up some of these and they are starting to see better return. While priced high, affecting their Value rating, Team 17 seem to have their market sorted, their IPs sorted with more planned in. Played a few of the games they made (didn't realise they made them until researching them, so the heart didn't lead the head) and they are solid well-made games.

Party games which, post-COVID, might be in more demand.

We'll see how they further develop as without a AAA title, or what looks like to be the next big game, won't likely see a massive year of sales. Just solid, quiet growth.

Dorlingus

25th Apr '20

Jarvis Investment Mananagement - Telephone Broker and very useful for SetsQX stocks
X-0 (Jarvis online execution only) - Very reliable for me over the years.
IG - (Excellent alround, but expensive if you need to telephone deal)

MiserableJacktPotato

A big plus that no one seems to have mentioned is that their operations are almost certainly unaffected by lockdown. Games developers generally aren’t the most social people at the best of times, being told to work exclusively from home will probably see them develop faster, certainly not any slower, and everything they do is easy to achieve online.

I looked at these a while back, but forgot about them, after this review I’ll be looking to grab a few and tuck them away in the don’t bother looking again for three years portfolio.

Thanks for the write up, very interesting and well written.

Video game candidates #2: Team17

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Jack Brumby

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