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tinyBuild delivers confident update, remains in expansion mode

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tinyBuild [LSE:TBLD], the global video games developer and publisher behind popular indie games such as Hello Neighbor and Pigeon Simulator, released a half-year trading update to the market on 12 July 2022 ahead of its annual general meeting.

Despite a challenging environment for the video games industry, as the Covid-19 pandemic and lockdown restrictions unwind, tinyBuild delivered a confident update on half-year performance, with its sales in H1 slightly ahead of expectations.

Buoyant trading for tinyBuild in the first half was driven by outperformance from the company’s back catalogue of games, which contribute roughly 80% of group revenues. The group also benefited from a strong release schedule, delivering three titles for the PC game service Steam: Startup Panic, Expedition Zero and Not for Broadcast. Despite a record-setting level of new game releases in H1, tinyBuild confirmed that the release schedule is even more busy in H2, suggesting full-year figures will remain strong.

Hotly anticipated releases

Amongst the releases in H2 for tinyBuild comes the hotly anticipated Hello Neighbor 2, which will receive full release in December 2022. Hello Neighbor was tinyBuild’s first hit franchise. The company discovered Hello Neighbor after the game’s original developer tried to launch the game without success.

In 2016, tinyBuild agreed to a publishing contract with Dynamic Pixels (now Eerie Guest), which led to the release of Hello Neighbor in 2017. The game has since accumulated over 70 million downloads across PC and games consoles. In subsequent years, tinyBuild acquired the total IP rights to the Hello Neighbor franchise, and thus, the performance of Hello Neighbor 2 is critical for the success of the group.

Although tinyBuild is focused on the development of existing IP, the group operates an M&A programme, which is transforming the shape of the business. In 2021, tinyBuild acquired seven gaming businesses and the group has made a further acquisition in 2022 with the purchase of Demagic Games, a Russia-based developer, which tinyBuild worked closely with on the development of Hello Neighbor 2.

Acquisitions at tinyBuild have enabled the company to significantly grow its catalogue of owned IP, which has grown from 50% of its revenue in 2017 to over 80% in 2021. This has had a considerable effect on group profitability, as owned IP sales deliver higher profit margins. As seen below, tinyBuild adjusted-EBITDA margins have grown from under 20% in 2017 to over 40% in 2021.

TinyBuild EBITDA

tinyBuild EBITDA margins: Source – tinyBuild 2021 Annual Report

Tightly held shares

So far, acquisitions have largely been funded through the proceeds generated from tinyBuild’s IPO in early 2021. The company has only issued a meagre 621,006 shares through a placing to aid the acquisition of Demagic Games earlier this year. Investors wary of companies raising capital should look to the healthy net cash position for tinyBuild ($49m as of year-end 2021) and CEO Aleksandrs Niciporciks’ 38% share ownership for reassurance that tinyBuild is unlikely to pursue a dilutative strategy for shareholders.


Another bright spot in tinyBuild’s latest communication was the reveal of low single-digit labour turnover levels. This figure was one of the lowest rates in the industry, compared to a benchmark of 15.5% average turnover. The gaming industry has suffered many high profile scandals of poor working practices and workplace harassment as of late, with many notable companies such as Activision Blizzard, Team 17 and Ubisoft facing backlashes from employees, which ultimately culminated in a loss of talent from their respective organisations.

tinyBuild’s focus on retaining employees should continue to serve the company well as it begins to transition from indie developer/publisher to global gaming group.

Overhaul of tinyBuild business post-IPO

In terms of valuation, tinyBuild, like much of the market, has suffered a significant contraction in price since post-IPO highs in 2021. The shares have fallen just under 60% since reaching 293p in April last year. After adjusting for one-off IPO costs, tinyBuild earned 6 cents of EPS in 2021, resulting in a trailing P/E of 24 at current prices. Analyst expectations are for the company to deliver 9 cents of earnings in 2022, resulting in a forward P/E of 17 for earnings this year. With $48m in cash on the balance sheet to consider, tinyBuild’s valuation is far from expensive, and even trades at a small discount to UK peer Team17.

tinyBuild has overhauled its business post-IPO earlier this year. The group is now less dependent on solo projects and more profitable through its rich catalogue of owned IP. It is still very early days for the newly listed company. However, so far, the tiny team have made all the right moves in their efforts to scale tinyBuild into a global gaming powerhouse.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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