Haywood remains bullish on LEAF Mobile

It’s another smooth move by LEAF Mobile (LEAF Mobile Stock Quote, Chart, News, Analysts, Financials TSX:LEAF), which just inked a partnership with RuPaul’s Drag Race, a play that again demonstrates LEAF’s IP prowess, says Haywood Capital Markets analyst Neal Gilmer. In an update to clients on Wednesday, Gilmer reiterated his “Buy” rating and $0.75 target price for LEAF, which at the time of publication represented a projected 12-month return of 129 per cent.

Vancouver-based free-to-play mobile game company LEAF Mobile announced on Wednesday a multi-year partnership with World of Wonder Productions for the exclusive mobile game rights to Emmy Award-winning television series RuPaul’s Drag Race, which just aired its 13th season in January. LEAF subsidiary East Side Games (ESG) plans to develop and publish the game in partnership with World of Wonder using ESG’s IdleKit platform, used to create narrative-driven incremental or idle games. The title is expected to release in the second half of 2021.

“We are extremely excited for the opportunity to bring RuPaul’s Emmy Award-winning competition series, RuPaul’s Drag Race, to mobile in partnership with WOW,” said Darcy Taylor, LEAF CEO, in a press release. “The franchise perfectly aligns with our group’s values of inclusivity and we couldn’t be prouder to bring the first big budget LGTBQ+ mobile game experience to audiences everywhere.”

Gilmer said the partnership aligns with LEAF’s strategy of developing counterculture games for loyal and engaged audiences currently underrepresented in the mobile game space. Other LEAF games include Archer: Danger Phone, FUBAR: Idle Party Tycoon and Cheech & Chong Bud Farm. Gilmer said the deal with WOW shows how top tier global IP holders are increasingly confident in LEAF’s ability to deliver quality products that accurately reflect their brands.

“As a result of [RuPaul’s Drag Race’s] impressive success and high-profile judges, the series has gained significant awareness with an impressive global reach,” Gilmer wrote. RuPaul’s Drag Race was one of Reddit’s most talked about shows in 2019, Season 12 charted #1 on iTunes and All-Stars Season 4 trended #1 on Twitter after All-Stars Season 3 broke all previous ratings records for the franchise. WOWPresents, the company’s YouTube channel, has generated six million views per week during Ruaul’s DragCon, a multiday convention where fans can meet their favourite queens and celebrities, attend insightful panels and watch live performances.”

LEAF said the new game will “take plays inside iconic moments from the series, making them a part of the show,” with fan-favourite queens making limited-time appearances.

LEAF’s share price has moved downward since the stock moved up to the TSX senior board last month, but Gilmer sees upside to the name. Looking ahead, the analyst is calling for full 2020 (and pro forma the ESG acquisition) revenue of $83.2 million and zero EBITDA, 2021 revenue and EBITDA of $135.4 million and $10.7 million, respectively, and 2022 revenue and EBITDA of $219.3 million and $38.4 million, respectively.

“We believe LEAF Mobile has created a strong free-to-play mobile game development platform poised for growth and potential acquisition opportunities,” Gilmer wrote.

On February 5, LEAF closed on the $159-million acquisition of ESG, an event first announced last October. LEAF also closed on a $23-million public offering of subscription receipts on February 4. LEAF also announced that ESG and LDRLY (Technologies), both under the LEAF Group of studios, were both recently awarded App Annie’s Level Up Top Publisher Awards, naming the among the top ten Canadian headquartered publishers by worldwide revenue.

On the ESG acquisition, Taylor said in a February 10 corporate update that the company has the entrepreneurial mindset to fit in well with LEAF’s decentralized organizational structure.

“The acquisition of ESG establishes LEAF as the largest Canadian publicly traded mobile game company. Combined with LEAF’s TSX graduation, this provides for greater awareness and access to capital to support LEAF’s growth strategy. Our new board members bring robust skills and experience that will serve as valuable resources as our company continues to grow,” Taylor said.

On March 9, LEAF announced a letter of intent to acquire Vancouver-based mobile game developer and publisher Truly Social Games (TSG) for a price plus earnouts of up to $37.0 million. Founded in 2015, TSG has offices in Vancouver, Portland and Minsk and has products including Planet Gold Rush, Gold Mania, Invincible Hero, Idle Surging, Bomb Brawl! and Draw A Stickman: AR.

“We believe this transaction creates a strong precedent for other teams developing on our IdleKit technology game framework and showcases the pipeline of M&A opportunities it provides,” said Taylor in a press release. “We will also expand our footprint into new geographies and game genres to further strengthen LEAF’s portfolio. The team at Truly Social Games are a skilled studio with strong experience utilizing our IdleKit framework and we see strong growth potential with an exciting development pipeline in 2021.”