Description

tinyBuild is a publisher and developer of indie and AA video games played on PCs, consoles (Xbox, Playstation, Switch) and to a lesser extent, mobile devices. It was founded by the CEO Alex Nichiporchik (“Alex”) in 2013 who currently owns 37% of the equity, and listed on the UK’s AIM exchange in 2021 when the market for tech-related companies was extremely buoyant during COVID. Since its listing at $3.02 (share prices & market caps expressed in USD despite UK listing in GBP and Frankfurt listing in Euros) per share at a market-cap of about $600m, the share price has plummeted by more than 95% to its current price of $0.10 and a market cap of $20m, creating the opportunity I see today. Due to this small size its probably only relevant as a PA position. At today’s prices I estimate the stock trades at between 1.0x and 1.5x EV / EBITDA on anticipated year-end earnings to December 2023, or about 0.25x book value.

My investment thesis for tinyBuild can be summarized in four points: 1) an incredibly cheap valuation of the current portfolio, 2) an aligned founder that understands video games development, people and has a long-term approach, 3) significant ignored latent value sitting in the game pipeline, and 4) further (free) optionality pertaining to unearthing a big-hit game. The price mitigates even some of the most severe downside scenarios and I expect anywhere from 2.5x under a simple re-rating to a 10-bagger under decent execution.

The reasons for listing in 2021 were two-fold. The first was to raise capital for further investments into new and existing video game franchises. The second was to use the stock to incentivise staff and align the interests of the current and prospective employees with the financial success of the company. Since listing, the company has launched several successful games (and had a few misses) and spent considerable capital on developing a broad pipeline of new game titles. A video game typically takes between 2 and 5 years from the start of development to launch, so much of the IPO capital still hasn’t translated into earnings for the company (ie. latent pipeline value).

tinyBuild consists of 12 internal development studios around the world that are each responsible for certain game titles under development. They have a portfolio of more than 80 existing indie and AA game titles with a further 50 projects under development (some of which are new games and some are add-ons to existing games). Their top 3 titles make up 38.5% of their revenue and top 10 make up 67% making them quite diversified and not overly reliant on a single game for their current earnings. The company’s goal is to focus on IP ownership and create long-term scalable franchises across multiple media formats. Once they have success in one game they like to leverage that success into additional spin-off game titles as well as linear media (books, comics, animated series). This lowers their risk since selling a follow-on version of a hit game is far easier than marketing a brand new title - the hit game already has a large fan following. When developing a new game title, tinyBuild looks to build 1,000 hour games (those that players will spend at least 1,000 hours playing) because those tend to be the ones that have real franchise potential. 

Video games can broadly be split into three types:

• indie (short for independent) games which are often self-published and have small development budgets of less than $1m and typically sell for less than $20 per copy; 

• AA games have slightly larger development teams and are often funded by 3rd party publishers. They put up the typical $500k - $5m needed to develop and market the game and typically sell for $10 - $30 each (premium AA games could cost as much as $10m to $20m but this is not where tinyBuild’s focus is); and

• AAA games that have large development and marketing budgets sometimes exceeding $100m, paid for by large game development companies, and typically sell for $40 - $70 each. 

tinyBuild makes 65% - 80% of their revenue from their own intellectual property (“own IP”) where they own the full rights to their indie or AA games, and the balance from the 3rd party publishing of someone else’s game for which they take a share of the revenue. The company makes profit by selling a game for more than it cost to develop and market, with tinyBuild aiming for a minimum 2x return on their investment in each game title. 

There are several reasons for the dramatic fall in the company’s share price: 

• The market for small tech companies investing large amounts of capital in exciting (or hyped) but uncertain future outcomes all-but dried up in 2022. There are countless examples of such companies, in the US and globally, where the change in sentiment has decimated their share prices. 

• The video game industry has come under pressure more recently, with reduced game sales and layoffs by the largest firms like Microsoft (which own Xbox) – this has affected tinyBuild’s near-term revenue.

• The existing portfolio of games being developed has consumed a large portion of the company’s IPO proceeds and subsequent operating cash flow without yet materially contributing to the company’s earnings. This latent value build-up is being completely ignored by the market currently.

• tinyBuild has made some mistakes, the main one being the acquisition of a 3rd  party publisher called Versus Evil which has been substantially written down. 

• Lastly, the stock is now extremely small at a $20m market cap, which takes the company off the radar of most investors. This has resulted in low liquidity and large spreads, with a few large sellers having a disproportionate impact on the company’s share price more recently.

So with all this “hair” on it, why do I like tinyBuild as an investment? Let me list the reasons: 

1. Unlike many of the speculative investments that were decimated in 2022, tinyBuild is profitable, makes positive operating cash flow, and is debt-free. It plans to remain debt-free and expects to break free cash flow even (operating cash flow paying for game development) in 2024.

2. The company is run by its founder who has shown his leadership qualities during some tough times and has deep expertise in video game development. He started playing games professionally (to feed his family) at the age of 14 and has built a large game portfolio from scratch. He owns 37% of the equity and wants to buy more of it (if the other shareholders would let him – more on this later). And equity that was worth more than $200m at IPO is now down to below $10m.

3. The company thinks long-term. It thinks about media franchises. It is not chasing near-term earnings but is focussing on creating IP that will last decades.

4. The company is cheap. Dirt cheap. Even if one ignores the $60m spent on the games under development since the IPO that are mostly being launched in the next two years, the existing portfolio of games should return at least $8m EBITDA in FY23 which translates to a multiple of just 1.3x EV / EBITDA (allowing for the $10m guided cash on hand at year-end). Comparable companies currently trade (after the recent industry downturn) at 5x this multiple. And this valuation for tinyBuild is almost certainly “trough earnings”, having made $20m EBITDA in FY22 before the recent industry downturn and multiple new game releases expected in the next 24 months.

5. The company has a track-record of successfully developing, marketing and selling games that attract hundreds of thousands or even millions of players. Marketing is a core strength of the company, having built a network and strong brand beyond the games themselves. Several of tinyBuild’s future games in the pipeline rank very highly on independent sites, which bodes well for future sales. These games cost a lot of money to develop and are yet to affect earnings.

6. There is always the opportunity that tinyBuild creates a mega-hit, a game that costs $1m - $5m to make and returns more than 50x its initial investment. This is hard to predict or rely on, but there are many examples of indie and AA games that struck a chord with gamers and transformed their development companies. This optionality exists within tinyBuild as they constantly explore innovative game concepts and spread their net widely. And importantly, the current market cap places no value on this optionality.

In summary, the company is priced as if its going bankrupt. With no debt, an existing catalog of games that are profitable and the ability to turn off new game development spending at any time, bankruptcy seems like a remote possibility. If the company just achieves below-average results for its upcoming games, it should comfortably return to $20m EBITDA which at a low multiple of 5x will yield a 4x return over the next three years. But based on my research, there seems to be a fairly high likelihood that this company succeeds in which case an investment in tinyBuild at today’s prices could be a 10-bagger or more in a reasonably short period of time. This is certainly an asymmetric opportunity with substantial (albeit uncertain) upside and the downside massively mitigated by the valuation.

A brief history of tinyBuild – from a Kickstarter-funded game to IPO to a share price crash 

tinyBuild started in 2013 when they released No Time to Explain, an indie game that achieved overnight commercial success. The game was conceptualized by Tom Brien who built a tongue-in-cheek flash game over a weekend in 2011. Alex saw potential in the game and they partnered up, raised money through Kickstarter for the game’s development, and launched the title while working in other jobs. Part of the game’s success was driven by influencer-marketing (before this was really a thing) which also gave birth to tinyBuild’s current marketing strength as a 3rd party publisher. 

After the game’s success they quit their jobs and rolled the game’s proceeds into a second title called SpeedRunners, which they co-developed and published in 2016 to huge success. At the time of IPO the game had more than 7 million downloads and generated almost $10m in revenue. tinyBuild were also the 3rd party publisher for a number of indie game titles at this time, but realized that IP-ownership was the better route to maximize success from gaming titles. This thinking led them to release their now wholly-owned hit called Hello Neighbor in 2017 which formed the start of a franchise that has seen more than 70 million downloads, 4 million books sold and more recently an animated series.

Around the same time they acquired a 49% stake in DevGAMM, an Eastern European-focused video game event organizer. The networking opportunities presented by the DevGAMM conferences lead to many of tinyBuild’s successful video games, either as 3rd party publisher or IP owner.

Their IP-ownership focus led tinyBuild to acquire a number of studios. In 2019 they bought Dynamic Pixels who were responsible for the development of Hello Neighbor in 2019. This was followed by three more studios in 2020. By owning the studio and IP as opposed to being a 3rd party publisher, not only could tinyBuild capture more of a game’s revenue as the IP owner, but they could also leverage off successful game IP and create additional gaming content (updates, downloadable content, spin-off games / sequels) which lengthen a title’s revenue runway in a less risky way. The 3rd party publishing is still extremely valuable, not only allowing tinyBuild to share in some of the revenue from successful game titles, but also allowing them to work closely with developers to find the right cultural fits for future studio and IP acquisitions.

In 2021 tinyBuild listed. Despite being a US-domiciled company with studios across the world including several in Eastern Europe (where Alex was born and raised), the UK’s AIM exchange was identified because it already had many listed peers of tinyBuild. Alex felt that in the US the company would invariably be compared to the AAA game developers and mobile juggernauts, and tinyBuild’s business model was different. They used their IPO proceeds to invest in more games and buy more studios. And they have used their listed equity to incentivise their staff and fund some of their acquisitions. The following diagram shows tinyBuild’s journey and the build-up of their substantial games portfolio over time to over 90 titles (owned and 3rd party) today: 

Late in 2021 Alex started becoming worried about the build-up of Russian troops on the Ukraine border. tinyBuild had about 180 staff in Russia and Ukraine. He worked with his team during this time of relative calm to plan the company’s actions under several conflict scenarios. When the “Code Black” scenario came to pass with Russia’s invasion, tinyBuild were ready and quickly worked on getting as many of their staff to safety, either out of Ukraine or to its western towns. They also evacuated many of their developers out of Russia, avoiding potential conscription. Staff were housed at his own property in the Netherlands as well as locations in Latvia and Serbia.  The company incurred significant costs ($1.7m in 2022, $281k in 2023) to help their employees and their families. (I recommend listening to the Game Maker’s Notebook podcast interview with Alex for more about the Ukraine situation and tinyBuild’s actions.)

In 2023 the company’s COO Luke Burtis resigned for family reasons following a lengthy period of paternity leave in 2022. The company’s CFO Tony Assenza also resigned a few months later for personal reasons. Luke was not replaced since the company had seen the need to move to a more decentralized model which gave their multiple studios the autonomy they require to make decisions and act swiftly. In the case of Tony, he has been replaced by Giasone (Jaz) Salati who was the head of investor relations. Jaz seems far better suited to the role than Tony as I’ll explain the management section below. 

This brings us to the latest earnings release for H1 2023 where tinyBuild declared a large net loss of $25.3m. $18.3m of this was due to the non-cash impairment of development costs to “reflect more competitive market dynamics”, having stopped the development on some more speculative game titles. Another $8.9m was the non-cash impairment of a quality assurance studio they acquired (alongside Versus Evil) called Red Cerberus, as well as a games studio called Not Games. Following a buoyant COVID period, the gaming industry has certainly come under pressure in the last 12 months with reduced sales and job cuts at many companies. Management appear to have been somewhat caught up in some of the market’s buoyancy and are now feeling the pain of some of some acquisitions made in that period. In addition, the recent downturn has affected tinyBuild’s “development services” (platform) revenue which they receive from platforms like Microsoft’s Xbox. These platforms pay for the development of specific games as well as exclusive titles or bundle fees (ie. inclusion in Xbox Game Pass or Playstation Plus). Notably the company made positive operating cash flow of $6m in the 6 month period to June 2023 and with more revenue traditionally concentrated in the second half of the year as well as recent new game releases not yet reflect in the earnings, I expect them to be comfortably profitable for the full year.

The share price graph below shows how the market reacted to the trading update at the start of July 2023 after the company announced lower expected revenue for FY23, revised their cash projections from $26.5m to a range of $10m to $20m, and told the market about Tony’s resignation. The large drop at this time from over $0.40 to below $0.10 can also be explained by a hedge fund with 5% of the equity dumping their tinyBuild shares in the open market.

tinyBuild key management

Alex Nichiporchik - CEO 

Alex Nichiporchik was born in Latvia and started gaming professionally when he was 14 by competing in tournaments for money. He soon realized that although he was a good gamer for the Baltic States, he wasn’t as good on the broader European stage so took his knowledge, quit high school and  became a game journalist to help support his family. His journalism gave him exposure in the industry and at 19 he was approached to lead development teams and become a game producer, initially for Xbox 360 games. On the side he was working on smaller personal projects, one of which was founding a website hosting tournaments for gamers playing Counterstrike, for which he charged a small fee. This taught him about online marketing which would be important later for tinyBuild’s publishing success.

Alex wanted to get into game development but opportunities were limited in Eastern Europe. He was working as a producer on some web flash games when he came across Tom Brien and an early flash version of No time to explain, which was the start of tinyBuild in 2011.

So in a relatively short period of time and by just 23 years of age, Alex had already played games professionally, produced games, engaged in online marketing to attract gamers and then started developing games. Along the way Alex made many contacts in the gaming industry and applied his knowledge as a publisher within tinyBuild. His marketing expertise saw them acquire a game events company called DevGAMM (disclaimer: it is 51% owned by Alex’s wife) which focussed on Eastern Europe and attracted many of tinyBuild’s current titles. tinyBuild’s marketing focus has not just been on the games themselves but also the company as a brand. This can be seen in their social media following compared to other (some much larger) gaming companies

tinyBuild grew through a combination of 3rd party publishing and IP ownership. Alex’s background had given him the understanding of what it meant to work with developers, who are largely creative individuals that are passionate about their art and need to be managed appropriately to get the best out of them. The company has shifted to a more decentralized approach in the last two years to give individual teams more autonomy (which creative people crave).  He comes across as a strong leader of people, illustrated by the way he handled the Ukraine crisis and looked after his employees at the company’s cost. Additionally, in an industry known for high employee turnover of around 15%, tinyBuild’s turnover is in the low single digits. Alex also understands the need for aligning incentives and this was one of the key drivers for the listing of the company.

Having listened to interviews with Alex, he is certainly no stranger to adversity. He grew up in a challenging part of the world and has overcome several obstacles to get to where he is. This bodes well for where tinyBuild is currently and for the need to adapt to a technological future that is difficult to predict. 

In 2022 Alex earned a salary plus bonus of about $500k. Even at the currently depressed share price his shares are worth almost 20x his annual earnings. He strikes me as resilient, passionate and has the broad and relevant experience (despite his age of just 35) to lead tinyBuild. In the 2022 annual meeting, Alex put forward a proposal to let him buy more shares. Since he owns more than 30% of the equity, Alex can’t buy more shares without putting forward a formal takeover proposal, so asked for permission to purchase equity without submitting a takeover bid. Shareholders voted against this request from Alex, but this does highlight his ongoing belief in tinyBuild.

Giasone (Jaz) Salati - CFO

Jaz was appointed to the board on 3 August 2023 after he was promoted to CFO on 29 June 2023. Jaz (48), who was previously the head of investor relations, replaces Tony Assenza who was the previous CFO. 

Jaz seems better suited to the role of CFO of a listed company. Tony was extremely limited in how he answered questions in the earnings calls and didn’t fill me with a great deal of confidence. Jaz has a listed equity background with his prior experience as a top equity analyst for Credit Suisse and Macquarie (#1 Stock Picker in 2019). More importantly he handled the most recent H1 2023 earnings call and subsequent investor questions with extreme professionalism and transparency. He didn’t avoid any of the difficult questions. Jaz seems better-suited to the role (at least from the outside) and it would be a great sign if he also acquired equity in the business.

Michael Schauble – CMO

Michael was appointed as Chief Commercial Officer in August from his role in Business Development. Michael previously worked at Microsoft for four years and was closely involved in Game Pass, amongst other things. I don’t know much more about Michael, but this connection to Game Pass, the gaming bundle of Xbox, should prove valuable for tinyBuild.

The gaming industry – high level overview for context

tinyBuild creates games to be played across multiple platforms. The main gaming platforms are PC, Microsoft Xbox, Sony Playstation, Nintendo Switch and mobile games on cell phones / tablets. Newer generation platforms like Meta Quest have also emerged recently for virtual reality game titles. Historically PCs have had access to more powerful hardware and software, offering a wider selection of games compared to other platforms. PCs also have broader applications beyond just gaming. PC therefore has the largest but also the most varied gaming audience, estimated at 1.75 billion gamers worldwide (note that these market stats all vary depending on the source). Next it’s the consoles with Playstation at 151 million, Nintendo at 87 million and Xbox at 63 million gamers. Mobile gamers account for more than 2 billion players, but the majority of this market play free games that are monetised through adverts or additional paid content. There are also new upcoming virtual reality (VR) platforms from Playstation, Meta and Steam, but these are still in their infancy. 

The largest open online platform for PC games is Steam, owned by Valve, with about 120 million active monthly users. Steam is an online store that sells games ranging from indie to AAA titles. Steam (like Xbox, Playstation and Nintendo) takes 30% of the gaming revenue for itself and passes the rest on to publishers and developers. All of tinyBuild’s games work on PC, and some are then ported to Xbox, Playstation and Switch to reach a wider audience. Certain games are also more suited to consoles. Porting to (or changing a game to work on) consoles can be expensive and sometimes costs more than actually developing an indie or AA PC game, so many games remain PC-only. The cost of porting also makes it a less feasible option for indie game developers without publisher support.

The consoles all offer gaming bundles, where a monthly subscription gives gamers access to a range of titles from indie to AAA games. These are Xbox Game Pass, Playstation Plus and Nintendo Switch Online. These platforms pay developers of selected game titles a negotiated fee to be included in these bundles, giving revenue certainty but capping the potential upside. The platforms have also been paying developers for exclusive game titles and to develop certain titles for their platforms. It's this revenue that has declined in the last 6 months and had the biggest effect on tinyBuild’s recent earnings. 

The video game industry is enormous and more importantly, growing. It is larger than Hollywood and the music industry combined. There are some real industry tailwinds with more and more people (young and old) spending increasing amounts of money on games. Reed Hastings, the CEO on Netflix, has said on numerous occasions that his company’s biggest competition is not another streaming service, but rather video gaming. Netflix are seriously exploring and testing a video game offering themselves. In addition, Microsoft has just bought video game developer Activision Blizzard for $69bn.

Approximately 40% of PC gamers globally come from Asia, 25% from Europe and about 10% from the USA. The average age of a gamer is estimated at 31 in Europe, 33 in the USA and a much lower 21 in Asia. 40% of gamers are female. The average gamer is estimated to spend about 7.5 hours playing games per week. Estimates vary, but the global gaming market is said to be worth about $250 billion annually (including mobile games). 

Understanding some gaming statistics and sales patterns

There are several sites that track the sales of PC games through Steam, providing a breakdown of game reviews over time, estimated game sales both in number of copies and revenue, follower counts and wishlist rankings. Since Steam doesn’t actually release their sales statistics, these tracking sites have algorithms that estimate the sales based on gamer reviews and some other publicly released statistics. These sales stats are not precise - I wouldn’t suggest trying to build revenue estimates using them - but are generally directionally valuable in assessing a game’s success. The sales stats from gamalytic.com claim to be 99% accurate on an aggregate level but on individual games they are within a 30% margin of error on 77% of titles and a 50% margin of error on 98% of titles. Estimates for larger games tend to be more accurate.

Wishlist rankings are a particularly good indicator for announced games that are yet to be released – gamers add games they like the look of to their wishlists and are then notified when updates for the game become available or it goes on sale. Games that rank highly on Steam’s wishlist rankings generally sell well at release, and then the reviews drive further sales if the game delivers on its expectations.

Gamers also write reviews of the games they play and on Steam these are classified as either positive or negative. A game’s overall review score is the proportion of positive reviews to total reviews received. The number of reviews and the review score also gives an indication of a game’s popularity. Consumers can rank games by their overall review score on Steam when deciding what games they want to purchase. There are thousands of games to choose from so reviews (and marketing) are important to stand out from the crowd. 

Importantly, there are no stats available for console sales. This is problematic in assessing the success of certain games that are more suited to consoles. A clear example here is tinyBuild’s number one hit franchise called Hello Neighbor, which the company has said experienced more than 70 million downloads (for the franchise), but PC sales estimates are in the low single-digit millions.

Sales statistics often start before a game’s official release date. This happens when games are put into “early access” where they are sold at a lower price for gamers to try out. Gamers who purchase early access titles understand that the game is still under development, so they are looking for potential rather than a complete game. Since a game takes anywhere from 2 to 5 years to develop, early access allows developers to gather data from players and test various elements of the game, giving them an opportunity to refine the game before official release. Early access also has the advantage of building a following amongst the gaming community and creating marketing hype for when a title is eventually released. Many of tinyBuild’s games are first released through early access (management have stated how they are data-driven in their decisions and early access is core to collecting that data), or alternatively they may release a free playable demo of the game which is generally more limited in its scope but acts as a marketing tool.

Many games are released in the second half of the year in anticipation of the holiday season. Game sales tend to be quite seasonal. In the US, the months of November and December can account for almost half of the game sales for the entire year.

tinyBuild’s most successful games – a proven ability to sell millions of copies and build franchises

The following table gives a summary of the top 30 selling games in the tinyBuild portfolio that were published by tinyBuild (as opposed to those published by the recently-acquired Versus Evil), ranked by estimated Steam PC revenue generated. The estimated revenue, copies sold, review score and copies sold in the last 7 days all come from gamalytic.com. Knowing that their figures are not exact, the site also gives a revenue range – the lifetime revenue shown is the midpoint of that range. I like this site because it estimates revenue which other sites like steamdb.com and steamspy.com do not, preferring to focus on copies sold, reviews and wishlist rankings. It's worth reiterating that 1) these are estimates based on an algorithm using select Steam statistics, and 2) these stats are based on PC Steam sales only not including consoles (which are a significant part, possibly as much as 50%, of tinyBuild’s business).

There are a few things I want to draw your attention to in this table:

• Old games can continue to generate revenue for many years. Examples from the table include #1 Graveyard Keeper, #4 SpeedRunners and #9 Hello Neighbor which have all sold hundreds of copies in the last 7 days and were launched years ago. This is perhaps surprising for many who look at the gaming industry for the first time. Keep this in mind when considering the tinyBuild income statement which amortizes game development over three years in a 40:35:25 ratio (this forms part of their cost of sales). tinyBuild focuses on keeping successful games fresh with updates, additional content, ports to other platforms and price discounts to drive continued sales. These ongoing sales from older games is critical when assessing the earnings of tinyBuild – it means that the company’s success is not purely based on coming up with the next new hit game. It's no coincidence that most of the best-selling titles tend to be the slightly older games on the list above – they’re good and have had time to sell many copies. As can be seen from the following ownership graph older games can keep selling copies and generating revenues for years. A game like Graveyard Keeper just keeps raking in the dollars and has actually sold more in every successive year after its launch than the year before:

• There are many new titles on the top 30 list notably #2 Graveyard Keeper, #14 Not For Broadcast, #15 Despot’s Game, #16 Cartel Tycoon, #19 Asterigos and #20 Punch Club 2. tinyBuild’s ability to release quality titles on an ongoing basis has continued after its IPO.

• tinyBuild owns some of its game titles along with the associated development studio (“1st party”), just owns some game IP without owning the studio (“2nd party”) and is merely the publisher for other games (“3rd party”). They make the highest gross margin from 1st party titles at 80% - 90% versus 30% on 3rd party titles (having to share the revenue upside with the developers after first recovering their upfront investments) with 2nd party falling somewhere in between at about 50%. It is not always clear which tinyBuild games are 1st party versus 3rd party. The ownership column in the table is a (fairly accurate) guess based on going through the company’s IPO admission document, various earnings releases and presentations. The company prefers not to disclose this explicitly as they do not want to be seen as favoring their own games over 3rd party titles. Note how some of the best recent sellers in the last 7 days are 3rd party titles (#1, #2, #19, #20, #23, #26). You’ll see this impact their gross margin in their most recent earnings release. Note that a title currently labeled as “1st party” or “2nd party” may not have started that way, with tinyBuild acquiring the IP and / or studio after a game’s launch. An example here is the Bossa Studios games #6, #12 and #22 where tinyBuild acquired the IP of Bossa Studios in August 2022, many years after some of these games were released.

• Being the top 30 selling Steam PC titles, the games on this list all tend to have high review scores generally above 80% and sometimes exceeding 90%. Higher review scores tend to be associated with better game longevity and ongoing sales, but this is not always the case. Expectations tend to be higher for games with higher price tags and therefore the reviews could be lower. Gamers can filter by review score when deciding what games to buy on Steam.

• Being AA and indie games, they are typically priced between $15 and $20 although there are exceptions. Games that were probably more costly to develop and that management thought could justify higher prices are #9 Hello Neighbor, #10 Pathologic 2, #17 Hellpoint, #19 Asterigos and #25 Hello Neighbor 2. The prices shown are the standard prices and will receive discounts for short periods (coinciding with new content, festivals, etc.) to maintain interest in the games and attract new gamers. A key reason for gamers choosing to spend their time on an indie or AA title over a AAA mega-cost game is the price - they are able to buy 3 to 5 AA games for the price of a single AAA game, giving them a much broader range of gaming experiences for the same money. Once a game’s popularity has been proven and sequels are released, there appears to be greater potential to increase the price of that sequel.

• This table only shows stats for Steam PC game sales. This impacts certain tiles like those from the Hello Neighbor franchise (#8, #9 and #25) which management have said (many times) sell far better on console platforms.

• The revenue shown is the total revenue the game has generated, before Steam takes their 30% cut with the balance going to the publisher and developer. (The revenue in the tinyBuild income statement is net of the platform cut.) This revenue should be viewed in the context of a typical indie game development budget of less than $500k or AA game budget of $500k to $5m. The revenue shown does not include additional downloadable content (DLCs) like for #5 Streets of Rogue where you can also buy the game’s soundtrack, “The Making of” package with videos from the developer along with early game versions, as well as additional characters for the game (all through Steam as extra purchases). tinyBuild are extremely focussed on building long-term franchises, which speaks to the availability of DLCs on several of their games.

• Some of these games are still in early access like #3 Deadside and #26 I Am Future. The fact that these games are in the top 30 sellers bodes well for when their full versions are released. Early access allows tinyBuild to test games with players whose expectations are lower, earning some (lower) revenue in the process. #2 Potion Craft is an example of a game that was wildly successful in early access where it sold for $14.99 and then recently increased its price to $19.99 after the full release.

• #19 Asterigos is seeing a massive spike in its sales in the last 7 days after the recent anniversary update it received along with a 45% temporary price discount.

• #30 No Time To Explain Remastered is based on tinyBuild’s very first game (as described in the brief history) but the stats shown are for an updated version of the game. I suspect the original game is too old and therefore not captured in gamalytic data.

Capital allocation is the key to the long-term success of this business

When you’re investing in a game developer, especially one in a growth phase, you’re essentially making the call that you trust management’s ability to identify good game titles and allocate capital at the right price for those titles. This allocation typically takes the form of either the internal development of a game, an investment as a 3rd party publisher in an externally-developed game, or the purchase of external IP and / or the associated game studio. Fortunately because of the low share price of tinyBuild, capital allocation really doesn’t have to be very good (and could actually be quite poor) for you to still make good money on this investment. But I would argue that, despite a few mistakes, tinyBuild has actually done a decent job at allocating its capital.

The following table shows the company’s revenue growth along with its cash generation and reinvestment of that cash. The revenue has grown strongly (admittedly off a low base) and operating cash flows covered their investing activities up to the IPO in 2021 where the business received a large cash injection. Up to this point it's difficult to argue that the company’s capital wasn’t well allocated. 

The IPO proceeds along with the cash generated from operations has been used to invest heavily in the game portfolio of late. And considering that a game takes 2 to 5 years to develop and launch, much of this investment in new games has not yet affected tinyBuild’s income statement. This large investment soon after the IPO with delayed revenue negatively impacts free cash flow and makes the recent capital allocation more difficult to assess. But one could certainly describe this situation as a “coiled spring” – the extent of the coiling depending on how well they execute their game development and marketing.

Management have said that they aim to make at least 2x money on their gaming investments. We don’t have a huge amount of evidence on how this has played out for individual titles except the FY22 earnings release where they spoke specifically about three titles that had recently been launched. They achieved an average return of 1.9x by the end of 2022 on three titles that each cost more than $1m to develop and were launched in succession in 2022 (so none of the games had even had a full year of sales yet). I suspect these games were Potion Craft, Asterigos and Hello Neighbor 2. To put this goal of 2x money back into IRR terms, if you consider that return over three years (the amortization period) then that’s a 25% IRR. And we know that some games can be big hits and return much more than this multiple over many years (paying for some of the misses of course).

 The $1m development cost for these three titles was significant for tinyBuild because before then their “sweet spot” was a total budget of about $500k for a game. They have gradually been moving up the development cost curve as they’ve grown and have mentioned that some of their new titles will cost between $1m and $5m to develop. In the case of Deadside for example, they bought the IP in 2021 and increased the development team from 6 to 20. The game is still in early access and is continuously releasing updates. I suspect that by moving up the cost curve they likely increase their chances of striking gold and finding a mega-hit game.

Despite the increase in development cost (or investment) per game, the capital allocation is nicely diversified both in terms of size and game genre. tinyBuild management understands that hanging their company’s success on just a few titles is not the percentage play, and go to great efforts to highlight how they spread their bets. The following image shows how their $16.9m software development spend in H1 2023 is split amongst more than 50 projects, with 20 projects receiving more than $500k (annualized):

Keep in mind that a project does not necessarily mean a new game. A project could be porting an existing game to a new platform, or developing an update for an existing game. tinyBuild focuses heavily on enhancing their existing portfolio in this way to drive ongoing sales in a low-risk way. That being said, there are plenty of new games in the pipeline as I’ll show in the next section. Also note that in the Q&A the CFO did say that despite the second bullet above, no single game accounted for close to 15% of the development costs. 

The FY22 development spend of $36m was also very diversified:

When tinyBuild makes investments in external IP, they have increasingly structured these investments with a contingent performance component. This de-risks the investments and aligns both parties. This type of structuring paid off for tinyBuild when they acquired the third party publisher Versus Evil and the quality assurance (QA) and testing company Red Cerberus in a total $31.3m transaction in 2021. This has been a very poor acquisition for tinyBuild. They paid $12.5m upfront in cash with $18.8m in deferred contingent consideration over three years, in shares (or cash at their option).  They wrote down $11.1m of the investment in FY22 but got that back by reducing the contingent consideration by $11.1m. In H1 2023 there was a further write-down of Red Cerberus. This clearly reflects acquisition mistakes made in the prior two years. 

In H1 2023 tinyBuild also impaired their software development by $18.3m. This reflects tinyBuild stopping development on more speculative titles in light of the tougher market conditions. 

You’ll notice in the images above the mention of “new tech, media and platforms”. This relates to a few projects that we know about: 

• The first is the development of games for the VR platforms – games like Kill It With Fire VR and Hello Neighbour: Search & Rescue. VR as a technology is still in its infancy so it may not have the audience to justify a game’s development using the same criteria as for PC or console. Management has indicated that this is more research and learning for now. Both games seem to have decent ratings on Meta Quest. 

• The second component that falls into “media” is the creation of an animated series for Hello Neighbor. This is being released episode by episode for free on YouTube. Management have said that their current goal is simply to recover their costs on this series (through advertising share) and for it to act as marketing for their Hello Neighbor franchise. There seem to be links between the animated series and the game. Despite not having a pure profit motive, tinyBuild have not spared the expenses on this series development, employing writers that worked on well-known animation projects Ben 10, Sonic and Big Hero Six. At the time of writing tinyBuild have released four episodes of the series on YouTube, starting with the first two episodes followed by a long gap and now a more regular release schedule. These episodes have attracted significant viewership with 1.9m for episode 1, 1.4m for episode 2 (both released 10 months ago), then 370k for episode 3 (released 11 days ago) and 136k for episode 4 (released 4 days ago).

This investment in new tech, media and platforms alongside their investment in existing franchises (Hello Neighbor, Despot’s Game, Streets of Rogue, Kill It With Fire) - shown below in the upcoming game releases - highlights tinyBuild’s focus on long-term franchise value creation when allocating capital. Their five year plan from the latest earnings release shows this franchise focus (as well as the concentration of bigger titles expected in the next few years). tinyBuild believes that video games will be the source of some of the mega-IP of tomorrow the same way that comic books are the source of today’s mega-IP.

Over time, tinyBuild has shifted to more of an IP ownership model. The reason for this is that when a 3rdparty published game is successful, it's not always easy to get the developers to build on that game and make it a franchise (besides the fact that the publisher shares in less of the revenue than the IP owner). Developers are creative people that seek new projects and may be very satisfied with the money made on the original title, preferring to move onto something else. Even when developers do want to build on a successful game, the original 3rd party publisher may not be chosen to be the publisher on the next title which is now in demand and often goes to a higher bidder. So although 3rd party publishing will remain important for tinyBuild, their capital allocation reflects their shift towards IP ownership.

The final thing I’ll mention on capital allocation is that management has recently put the option of share buybacks on the table. Historically when asked about this they’ve always said that their opportunities to invest in new content was more attractive than buybacks. But with the massive decline in the share price they now admit that if it were to stay at these levels, buybacks would be a viable option. It remains to be seen how they act on these statements and the investment certainly isn’t based on buybacks as a core allocation option. But I strongly agree that at these prices buybacks would be extremely lucrative for shareholders – spending just 10% of the development budget on buybacks instead would be equivalent to about 17.5% of their market cap.

The gaming pipeline - recent and upcoming releases

The current catalog of games will drive the current revenue base of the company, but future revenue growth will largely come from new game releases. I say “largely” because additions to the existing portfolio of games through DLCs, updates or porting to new platforms can also drive meaningful growth. But if we just focus on the recently released and upcoming game titles, there is much to be excited about. These are the titles that either have been launched and are not fully reflected in the company’s historical earnings to H1 2023, or future planned game releases where much money has already been spent on developing them but they are not adding to earnings at all (yet). 

The following table summarizes the recently released and pipeline games together with some early sales statistics or wishlist rankings (if not yet released). Management have said that they use the wishlist numbers as a guide to how successful a game is likely to be at launch – it's basically an indication of the marketing effectiveness and likely early take-up. The wishlist ranking is amongst all games on Steam that have been announced, including AAA titles. For context, when Potion Craft launched (the #2 all-time game for tinyBuild in terms of estimated Steam PC revenue) it had a ranking of about 100 and when I Am Future launched into early access it had a wishlist ranking of about 140. The further out a title is from release, the less information is available about the game and the lower its likely wishlist ranking. A ranking in the top 300 is good and top 100 is great for tinyBuild.

The table also shows whether tinyBuild owns the game IP and whether the game is a sequel or part of a franchise. This is important because it speaks to the core strategy of tinyBuild: “…to create long-term scalable franchises…”. The final columns show the sales statistics for the games that have recently been released but (with the exception of #1 Deadside) did not have a full six months of earnings reflected in tinyBuild’s H1 2023 results. The list is ordered by the actual or expected release date:

A few key take-outs from this table:

• Firstly, notice how long this list of games is, which is mostly not yet reflected in the company’s earnings. These games should significantly impact tinyBuild’s future revenue. And importantly, since these games take between 2 to 5 years to develop and most are nearing release, most of the development costs have already been spent by the company.

• You’ll notice that some of the recent releases like #6 Punch Club 2 and #7 I Am Future are selling very well based on copies sold in the last 7 days. Punch Club 2 is a sequel to a popular game called Punch Club from the same studio – this has likely helped its early sales with fans who already know the game. I Am Future is still in early access with limited content, so its early sales success bodes very well for when the full version is released. Unfortunately both of these are 3rd party titles where the revenue share for tinyBuild is smaller than on 1st party titles. 

• #2 Kill It With Fire VR and #3 Hello Neighbor: Search & Rescue are both VR titles sold on Steam VR and Meta Quest and (for Hello Neighbor: Search & Rescue) Playstation VR. Management view these as an investment in future VR technology so the take-up of these games is unlikely to be high.

• #4 Farworld Pioneer was a flop. You can see this by the review score of 43 and the low sales numbers. The game came out and was extremely buggy which has turned many players off the title. This may very well be a negative mark on management’s decentralized approach. This multiplayer game clearly needed more oversight from management before they released it and will probably result in some losses for the company.

• #8 Black Skylands sold well during early access but from recent reviews it looks like gamers are disappointed in the full release. Its sales recently have been disappointing. It remains to be seen whether tinyBuild can turn this around with updates to the game or whether this game can find an audience after the recent spate of poorer reviews.

• I’ve put the most exciting game prospects in bold (#1, #7, #10, #19, #21 and #23). These are the games where I suspect tinyBuild is investing the most money and they have the greatest potential to be big hits. Three are 1st party and three are 3rd party. All of these games are highly anticipated as shown by their very high wishlist rankings (or early access sales) despite three of them not even having a release date announced yet. If these wishlist rankings are anything to go by, these games will have a great reception come release - then they need to deliver on the hype. A low wishlist ranking doesn’t doom a new title, but a high ranking certainly gives a game a big edge come time for release. Wishlist ranks can also be improved with good marketing (which tinyBuild knows a lot about).

• #1 Deadside and #7 I Am Future don’t have wishlist ranks because they’re already in early access and selling incredibly well considering the game content is limited compared to what the full versions will offer. #19 Streets of Rogue 2 is a sequel to an extremely popular first game of the same name ranked 5th in the all-time tinyBuild revenue estimate table above. This gives the game an instant (and large) audience when the release date comes around – sequels (and franchises) offer great certainty for developers and publishers.

• Lastly I’ll just point out that some of the games on the list are published by Versus Evil, the 3rd party publishing company acquired by tinyBuild in 2021. tinyBuild have written down their investment in Versus Evil so perhaps this suggests that they don’t anticipate huge success from their upcoming titles. However, #10 Broken Roads does have a very high wishlist ranking and is due to be released very soon. 

Income statement – years of revenue growth until the last 6 months which saw negative revenue growth from platforms along with impairments

The following table shows the income statement history for tinyBuild:

Take note of the following:

• The revenue has grown strongly until the last 6 months where it declined by 19% compared to the prior year. This decline is from the drop-off in platform revenue from (I think) Microsoft which has cut back its platform spending during this downturn. Two years ago this platform revenue was largely non-existent for tinyBuild but it does seem that management were gearing their development spend assuming the platform revenue would continue at a similar level. The recent drop-off in this revenue has forced management to cut back on certain games in the pipeline.

• H1 gaming revenue tends to be seasonally lower than H2 revenue. This is a trend in the industry. The following graph shows this trend over time for tinyBuild: 

• Amortization of development costs and acquired IP appear in different places in the income statement. The first is in cost of sales and the second is in operating expenses. Both are non-cash costs that reflect prior capex spend. Development costs are amortized over three years in a 40:35:25 ratio but, as mentioned, revenue can continue well beyond this 3 year period.

• Gross margins have declined in the last six months due to higher sales from 3rd party games (going from 17% to 35%) and higher amortization of development costs (increasing by $5m from $3.8m). The sales from Potion Craft and Graveyard Keeper (both 3rd party titles) have been particularly strong recently. Management expects the gross margin to increase again as new 1st party titles are released. The release of Hello Neighbor 2 was also a likely contributor to the lower margins, increasing dev cost amortization but starting off slowly from a sales and review perspective. The Ukraine war reduced the scope of the game and initially disappointed fans, but several patches have been released since launch and reviews have improved. The animated series should also help to spur interest in this title which was likely quite costly to develop. The following graph shows this trend for Steam reviews of Hello Neighbor 2:

• You’ll note that general operating expenses started growing dramatically in 2022. This can largely be attributed to the acquisition of Versus Evil and Red Cerberus which have underperformed from a revenue perspective. I expect management to take the steps necessary to address these issues, either through restructuring or asset sales. Without these underperforming acquisitions we would likely have seen more operating leverage in the earnings, and I think this may still happen in future years as pipeline game revenue comes through.

• There are a few non-recurring costs related to the IPO (in 2020 / 21) and the Ukraine war (2022 / 23).

• Although non-cash effects, the recent impairments in 2022 and H1 2023 are a clear blot on the earnings history. The 2022 impairment of Versus Evil for $11.1m was offset by a reduction in the contingent consideration for a similar amount (shown in “Other gains”). The 2023 write-down of software development ($18.3m) was partly due to tinyBuild canceling certain games they’d already embarked on. And the $8.9m further impairment of intangibles in 2023 is attributed to a further write-down of Red Cerberus as well as the Not Games studio. These impairments highlight the acquisition mistakes made by management during the boom of 2020/21. They’ve admitted to these mistakes and put them down to not knowing enough about their future partners in these businesses. They’ve put further acquisitions on hold and are focussing on software development.

Cash flow statement - reinvestment of IPO proceeds and positive operating cash flows

The following table gives a snapshot of the cash flow statement for tinyBuild including management’s full year guidance for FY23 in red:

Despite the recent impairments and lower revenue, the company continues to generate positive operating cash flows (admittedly helped by $4.2m of positive working capital cash flows in H1 2023). The IPO proceeds from 2021 along with these positive operating cash flows have been invested into software development and some acquisitions.

For the full year 2023 management have guided to a closing cash balance of $10m - $20m, software development spend equivalent to FY22 and no further acquisitions. Working backwards, this implies full year operating cash flows of about $20m and EBITDA for the year of $10m (±$2m) depending on working capital flows and assuming no asset sales are done to stay at the $10m cash minimum. This seems achievable considering the concentration of H2 revenue and the recent release of new game titles. Another lever management could pull is to reduce their operating expenses, especially in Versus Evil and Red Cerberus. It's important to highlight that management has not actually guided to an Adjusted EBITDA figure for the full year – this is my estimate based on assumptions for amortized development costs and net working capital changes. The second half of the year tends to be a working capital drain as tinyBuild typically gets their cash 4 to 6 weeks after a game’s sale and December is a busy sales period.

Management have stated that they do not want to go into debt and if they need to, they will reduce their software development spend if there is a further downturn in the industry. This development spend is completely in their control and they’ve clearly stated that they will take the steps necessary to remain debt-free. They have a $35m debt facility available to them but this is for the “unmissable M&A opportunity” which they have not come across and don’t expect to. In addition they expect to be free cash flow neutral in FY24.

Valuation and potential returns – 2.5x money with potential for much more  

Forecasting the future earnings of tinyBuild strikes me as a fool’s game. Much is dependent on the successful adoption of upcoming titles, when they are released, and whether the industry sees a recovery (or further downturn) in platform revenues. This uncertainty should not be confused with risk. The current price really doesn’t require much to go right to justify it, barring staying out of bankruptcy. Positive operating cash flows, flexibility on development spend and no debt make bankruptcy incredibly unlikely.  

Personally I tend to side with the “content is king” perspective and that more entrants into the gaming platform space (by the likes of Netflix, the upcoming release of the new Nintendo Switch or more VR spend) will spur demand for game content. The upcoming release of new games also look extremely promising for tinyBuild where we’ll see much of the fruits from the ±$80m spend on software development between 2021 and 2023. But none of this is needed to make the current price look far too cheap.

There are a few ways one could look at the valuation of tinyBuild: adjusted EBITDA multiple, operating cash flow multiple, book value or on a comparative basis. All seem to point to the company being heavily undervalued. The following table summarizes some key multiples

From a downside protection perspective I’ve shown the operating cash flow relative to the current EV – so if they turn off all development spending then that’s what the current assets are producing in cash relative to the market price. This is probably not a relevant figure because management believes in their growth initiatives, but it really highlights the absurdity of the current price and the downside protection offered by the existing earning assets.

The book value is somewhat instructive since that captures the money spent developing new IP. So if the upcoming games return just 1x money on release (management aims for 2x or more, but just for the sake of a downside argument), the cash generated should be multiples of the current price.

The numbers look a bit silly and seem to price the business as if it’s going under. But I think this may actually be a business that grows earnings strongly in the future with good returns on capital (20%+). The results are likely to be lumpy based on the success of certain games, but the outcome could be very satisfactory for long-term holders. That’s not something I’d bet my house on and the next two years will be telling in this regard, but at these prices it doesn’t have to be true for the investment to make sense purely on a value basis.

On a comparative basis, tinyBuild is priced somewhere between 25% and 33% of its nearest peers. The following table shows these peers with their valuations. All three peers are listed in the UK and are involved in publishing and development of AA and indie video games. Devolver Digital is based in Texas and the other two are based in the UK. Frontier Developments and Devolver Digital have both experienced large write-downs in the last 12 months whereas Team17 has not. They are all larger than tinyBuild in terms of book value and revenue, but are in the same ballpark:

So for FY23, if tinyBuild posts $8m Adjusted EBITDA (the bottom of my range) it would not seem unreasonable for this to be valued at an EV / EBITDA multiple of at least 5x giving a market cap (with $10m of cash) of $50m. This would be 2.5x today’s price and would value the company at just 0.5x price-to-book. Thereafter, success from the games currently in the pipeline could easily take the EBITDA back up to $20m or more in just 2 to 3 years and at the same low 5x multiple would result in a 5x return from here. Of course once the market sees a return to growth from the current trough earnings and that the company is self-sustaining from a free cash flow perspective, a 10x EV / EBITDA multiple would not seem expensive for a business yielding ±20% return on incremental capital. In this case tinyBuild could be a 10-bagger or more.

These scenarios really don’t allow for the optionality that exists for tinyBuild releasing a mega-hit AA game. I’m not talking Minecraft-big (which sold for $2.5bn to Microsoft) but games like Stardew Valley and Terraria which both have revenue estimates of about $150m just from Steam PC sales. The scenarios also don’t allow for Microsoft to reinstate its platform spending or Netflix coming in to acquire content for a gaming platform of their own. 

Key risks

At this point it’s probably best to just introduce a healthy dose of skepticism. After all this is a company that has fallen 95% from its highs, has just written off 1.5x its current market cap in impairments and is priced at just $20m! Investing is about the future and to quote Yogi Berra: “It is difficult to make predictions, especially about the future.” Let’s therefore consider three possible risk scenarios: 

1. The industry downturn is more severe than is already being experienced, counter to industry expectations and recent trends. People temporarily stop entertaining themselves with new video games or rather focus on one or two expensive AAA titles. tinyBuild sees a decline in its current catalog earnings and releases new games into a poor environment which hampers their sales. Under this scenario I think they reduce development spending to ensure survival and also cut back on operating costs, starting with Versus Evil and Red Cerberus. They’ve said they would reduce development spending if necessary. Importantly tinyBuild does not currently have any debt. Alex is a 37% shareholder and won’t want the company he built from nothing to disappear. In such a scenario, I still think the business is still worth more than the current price on an asset value alone.

2. The industry is fine and keeps growing, but the future tinyBuild games all bomb. Alex and his team are shown to be poor capital allocators (at least after the IPO) and blow all the IPO proceeds on dreams that come to nothing. It certainly wouldn’t be the first example of a CEO reaching for the stars and being incinerated in the process. I think their track record speaks to their ability to release good games, so this scenario seems unlikely for their whole pipeline which is very diversified. Again, Alex is aligned and has not shown himself to be unrealistic about the world with illusions of grandeur. He thinks long-term. He seems to care about his stakeholders. But even if this does occur, the current price does not need the future releases to succeed and is more than justified by the current catalog revenues.

3. Management double-down and increase their risk. They don’t go free cash flow positive, dip into their debt allowance and over-commit on one or two game titles or new acquisitions that fail. This is probably the most plausible severe downside scenario but one that can be monitored. Both Alex and Jaz don’t seem to have the appetite for this. They have committed to being free cash flow break-even in FY24 and not to touch their debt unless they find an unmissable opportunity. They must hold to what they said or at least have excellent reasons for departing from their stated plans. Game sales and new releases can also be monitored between earnings releases to track progress and anticipate upcoming results.

At the core of all the risk scenarios lies an unpredictability in the company earnings. The company’s success or failure hinges very much on capital allocation in a creative industry. By their very nature, hit games are often surprising. This is not a AAA game developer where large, established game franchises guarantee some level of minimum earnings. Besides looking at the track record and suitability of the allocators, success strikes me as difficult to predict. In the case of tinyBuild there is a track record, there is a suitable allocator who is aligned and the bets are diversified. 

A few smaller risks pertain to the recent change in senior management not being good for the business and the decentralized approach resulting in a drop in development oversight. We will only see the full effect of these changes over time, but I get comfort from Alex’s shareholding and the fact that he received a clear warning to remain vigilant from the failed Versus Evil acquisition.

An investment in tinyBuild should come with an expectation for earnings that are lumpy and a share price that will be volatile, especially considering its current size. This is more an investment “stomach” issue as opposed to an investment risk, but that doesn’t make it any less real. Unless you are willing to ride out these bumps, liquidity may make a quick sale challenging. The price largely mitigates any investment risk I see here. 

Buying shares in tinyBuild

The share is listed on the AIM exchange but for non-UK investors that may not be accessible. Interactive Brokers lists the share under the ticker 8Z3 in Euros on the Frankfurt exchange, but does not provide trading statistics like the bid-offer spread. Look up the 8Z3 ticker on boerse-frankfurt.de for the bids and offers to give you an idea of where to make your offer on your brokerage account. The incredibly small market cap has resulted in a large bid-offer spread, sometimes as much as 30%. This makes it more difficult to accumulate large blocks of shares – patience will be required. Also keep in mind that Interactive Brokers (and I’m sure other brokers too, but can’t speak to their processes) will cap your bid if it’s too far above the last price traded. You can contact them and ask them to increase their limits temporarily.

This all sounds like a real struggle, but this is partly why the share trades where it does. It’s not too difficult to buy decent amounts of the stock. If you’ve read this far I think you may agree it’s worth the effort. Also, if tinyBuild IR are able to sort out some of these issues with the likes of Interactive Brokers then it should bode well for those who already own the shares as they become more easily trade-able for the large US market.

Conclusion

This investment is one that is only available to small investors which creates unusual valuation dynamics that protect the downside and magnify the upside. A confluence of events have taken the price to where it is today, but this price movement does not tell us what is likely to happen tomorrow. If one looks through these recent troubles I think you’ll agree that tinyBuild has the potential to create some of the great entertainment IP of tomorrow in an industry that is large and growing. But even if it doesn’t, the current value far outweighs the current price creating a substantial margin of safety. In Alex you have an aligned founder who understands people and video games. Yes he is young and seems hungry to succeed, but he is not without a fair dose of realism. Overall I think the potential rewards substantially outweigh the risks here.

Catalyst

1. Positive earnings for full year FY23 and management keeping to their cash balance guidance.
2. Free cash flow neutral in FY24 as guided to by management.
3. Successful game releases from pipeline in the next couple of years adding to revenue.
4. A higher price and market cap may make shares more easily buyable which could be its own catalyst.