Sign up United Kingdom
Proactive Investors - Run By Investors For Investors

Is the Team17 float an upward or downward indicator for the video game sector?

With an expected market cap of around ten times its 2017 earnings and a booming UK gaming sector, is the Team17 float the sign of a golden age or a coming crash?
Video game controllers
Team17's expected market value is predicted to be between £200mln and £230mln

Team17 has set itself up as the place to go for the UK’s indie games developers, which use its platform and infrastructure to hone and publish their creations.

And it seems like the strategy has paid off, with the company seeing its revenues more than double between 2015 and the end of last year to £29.6mln from £13.5mln, boosted by the success of indie titles such as the Escapists series.

READ: Video games label Team17 to list on AIM

With an expected market value predicted between £200mln-£230mln or around ten times last year’s revenue, the market is expecting big things.

What is not in doubt currently is that the UK games industry is booming

According to data from the Association for UK Interactive Entertainment (UKIE), the UK games industry alone was worth £5.11bn in 2017, an increase of 12.4% from the year before, and almost equal to the music and video markets combined, even with a surge in streaming usage.

The supply side of the market is also busy, with UKIE estimating around 2,175 active game developers in the UK as of August 2017.

With the penetration of broadband and smartphones almost ubiquitous in UK households and the easy accessibility to games from digital marketplaces such as Steam and Origin, indie developers have multiple avenues to reach consumers aside from tradition retail outlets selling physical copies.

However, even these numbers are dwarfed by the international gaming market, which according to estimates from gaming market intelligence site Newzoo was worth US$116bn in 2017, a 10.7% increase on the previous year.

Why float now?

All of these positive-looking numbers might point to why smaller game developers are deciding to float now.

One of the key drivers, as with many companies, is expansion.

Carl Cavers, founder of another recent AIM-listee Sumo Group PLC (LON:SUMO), said: “We raised an extra £5mln during the IPO to help us fund acquisition and we definitely see that on the agenda for the near future.

“The key thing for us is to extend our service offering,” he adds.

Sumo completed its float in December 2017 after raising around £38mln in new capital and currently holds a market cap of around £191mln.

Another potential reason for the rising number of game developer IPOs is the establishment of video games as an entertainment market that crosses demographics.

The average age of a gamer now stands at around 35 with a fairly even split of 49% and 51% between women and men respectively.

As a side note, the burgeoning esports sector could also drive investment, as companies such as events and group organiser Gfinity PLC (LON:GFIN) seek to corner the audience market for competitive gaming in addition to lucrative partnerships with brands and advertisers.

READ: Gfinity continues partnership with Formula 1 for new esports series

Of course, the long-term question is - can the rate of growth within the industry be maintained?

Concerns over market saturation and customer dissatisfaction over certain income generating practices such as lootboxes have already been aired.

Veteran gamers will also remember the industry crash of 1983 where revenues fell almost 97% from US$3.2bn to US$100mln by 1985 (equivalent to a drop from around US$8bn to US$250mln today).

The business, though, looks to be an entirely different beast these days.

Technology has made spectacular advances which show no sign of slowing – virtual reality, for example, is likely to be the next big thing.

Blue-chip game developers such as Electronic Arts Inc (NASDAQ:EA) and Activision Blizzard Inc (NASDAQ:ATVI) are now huge corporations and technology giants such as Apple Inc (NASDAQ:APPL) and Microsoft Corp (NASDAQ:MSFT) also are keen to get involved.

While that may suggest a difficult time ahead for indie developers, the reality is likely to be similar to the music industry, where this is the place new ideas and innovations are developed and tried before being picked up by the majors.

Trading in Team17 is scheduled to start in May of this year.

View full PROAC profile View Profile

Proactiveinvestors Timeline

Related Articles

September 19 2018
“Cello Health is successfully building its early stage asset development advisory platform for biotech clients, as well as growing its core later stage and post-launch franchise with pharmaceutical clients”
Students in a class
August 27 2018
The company is gaining traction in Asia where people are looking to take language courses to work or study internationally
Lego ball
September 14 2018
The company's latest push is a joint venture agreement with US-based entertainment firm Three Six Zero, which has steered the careers of pop stars such as Calvin Harris

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use