Swords & Magic - that is just what Marvelous needed
Executive Summary
- Marvelous! (7844.T) is a Tokyo-listed Japanese video game company that was founded in 1997 and is based in Tokyo, Japan.
- Marvelous! is known for producing a wide range of video games across various platforms, incl. Nintendo Switch, PlayStation, Xbox, and mobile devices.
- Their game, Sword and Magic Logres Ancient Goddess is suddenly trending up the top 5 in Japan, thanks to a collaboration with a popular anime
- With a US$360M mkt cap against an approx. US$190 millions expected TTM revenue and US$25M net income, Marvelous does not have the highest of margins but is profitable and seems fairly valued
- Marvelous enters our Active Picks list as of April 20th 2021, at JPY 804.
Everybody loves and Ancient Goddess
Sword and Magic Logres Ancient Goddess (japanese: 剣と魔法のログレス いにしえの女神-本格MMORPG) is a massively multiplayer online role-playing game (MMORPG) playable on mobile and PC.
Players in the game explore the world of Logres, completing quests, battling monsters, and leveling up their characters. The game also includes a social aspect, with players able to form parties and guilds to take on challenges together. A MMORPG – what did you expect ?
Well, what we did NOT expect, is that 8 years after its (very successful at the time) release, the game would climb up the ladder to the top 5 grossing app in Japan. That happened thanks to a collab with the very popular anime “That day I got reincarnated as a slime” (Tensura). So what does that mean for Marvelous?
This could be big for Marvelous!
With this sudden increase in popularity, we estimate Marvelous! Mobile gaming revenue at US$200k daily against US$50k previously, a US$200k increase. Now, say they are able to sustain such a revenue for a full year, this would get us to an extra 200k*365 = US$73 millions.
Give it a haircut, say US$50 millions annual revenue, and compare it to its approx. US$190M Trailing Twelve Months Revenue (TTM) and you can see that this could increase Marvelous! Revenue by a significant 20%.
Keep in mind that mobile games are generally quite profitable when successful given the scaling is cheap: some ads and a lot of word of mouth.
We have not seen any stock reaction just yet. Actually it even dropped from JPY 890 to JPY 805 in the last few days. That’s what compelled us – the market, as often, is ignorant of what’s going on.
With a US$360M mkt cap and only US$26M in net income, Marvelous! Isn’t your most profitable mobile gaming company out there, but it is profitable and trades at less than 2x revenue, which we think is a decent entry price. Add a bit of salt and revenue from Sword and Magic Logres Ancient Goddess, the picture is starting to look rosy.
Risks
Investing always comes with risks. In this case, we are finding very little english information and have to do a whole lot of google translate on our research, which just is not great, as we could be misunderstanding some aspects of the company. Also, Japanese gaming market is notoriously hard to read because many players have publishing agreements, co-developing agreements. It takes a while to research and you never know who gets what part of the pie.
Conclusion
This is a long-shot because the game JUST started ticking and given it’s an update to a game and not a new release, it could be one of these short-lived anomalies. With that in mind, Marvelous! looks ripe for a move up with this major catalyst. It therefore joins our Active Picks list as of April 20th, 2021. We will follow closely how it does and will update should we see any major changes in our research. GLTA!