East Side Games has price target cut at Haywood

Following the company’s fourth quarter results, Haywood analyst Neal Gilmer has cut his price target on East Side Games (East Side Games Stock Quote, Chart, News, Analysts, Financials TSX:EAGR).

On March 24, EAGR reported its Q4 and fiscal 2024 results. In the fourth quarter, the company posted Adjusted EBITDA of $2.5-million on revenue of $20.5-million.

“We’ve doubled down on our fundamentals this year, ensuring we operate with efficiency and sustainable growth in mind,” CEO Jason Bailey said. “Looking ahead to 2025, we’re confident in the new games that we are launching and the growth they will bring. Our existing library, together with these new titles, clearly reflects our ability to leverage strategic partnerships to drive expansion and stand out in the mobile marketplace.”

In a research update to clients March 25, Gilmer maintained his “Buy” rating on EAGR but lowered his price target from $1.50 to $1.25. The analyst explained the reasoning behind the action.

“East Side Games reported Q4/24 revenue of $20.5M, slightly below our estimate of $22.8M, representing a sequential decrease of 4% and flat Y/Y. Gross margins were 60.2% in the quarter, up slightly compared to Q3 and down from 66.1% in the prior year period,” the analyst wrote. “As a result of slightly lower revenues and investment in user acquisition, Adj. EBITDA at $2.5M compared to our estimate of $3.6M. Adj. EBITDA margins were 12.1% compared to 12.0% in Q3 2024 and 21.7% in the prior year period. East Side Games generated $1.6M in OCF during the quarter, finishing the period with $7.6M of cash and no debt, an increase of approximately $2.2M from the end of 2023. We have made some small adjustments to our estimates for 2025, trimming our EBITDA margins from our prior expectations on higher spend while revenue declines approximately 3%. We are introducing our 2026 estimates that forecast 10% revenue growth and slightly improving margins towards 18.3%. We are adjusting our target price to $1.25 based on a 5.0 EV/EBITDA multiple to our 2026 estimate (previously 2025), discounted by 15%.”

Gilmer thinks EAGR will post EBITDA of $14.5-million on revenue of $92.8-million. He expects EBITDA of $18.7-million on revenue of $101.8-million in fiscal 2026.

“We believe East Side Games has created a strong free to-play mobile game development platform,” the analyst concluded. “Following the strategic restructuring in 2023 and the reduced operating expenses, the Company has positioned itself that drove EBITDA and cashflow growth in 2024 with revenue growth expected in 2025.”