Having closely followed the company since spring 2024 and having elevated the stock to the second pillar of my high-risk portfolio over the last month, I thought I’d share my fresh thoughts with others, as the previous post was from January 2022 – those who invested in the stock back then are now suffering a horrifying -85% loss.
Quick background on the stock price decline:
The mobile gaming bubble during the Covid era, both in terms of results and valuation multiples, hit the company particularly hard. Not only did it invest heavily in game development (with very poor future ROI), but it also built its investment story around M&A (a kind of mobile gaming Embracer). As the cherry on top, several M&A deals included unprecedented earn-out payments (e.g., 1x EBIT earn-outs for the next 3-4 years), leaving current investors with independent studios with weak margins and growth, cash-consuming earn-outs, and a debt burden of approximately 60% of the current enterprise value. Of course, valuation multiples across the entire mobile gaming market have decreased (e.g., MTG’s EV/EBIT 2026E approx. 8x), most likely due to fierce competition/weak competitive advantages (=poor ROIs for the average game) and the continued downturn in the market (excluding a few clear market winners). The latest “capitulations” in the stock were seen after the Q1 and Q2 reports, which were overshadowed by extremely sharp revenue growth figures of over -10% – investors have been waiting for positive growth figures since Q4/22. However, large declines and weak sentiment can also hide potential!
Theses for significant appreciation potential and a “risk buffer”:
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Subsidiary Jawaker almost solely covers the current enterprise value
In 2021, Stillfront acquired Jawaker, an Abu Dhabi-based gaming company targeting the global Arabic-speaking population. Its mobile application, containing 50 card and board games, has managed to grow 30% p.a. from Q4/21-Q4/24 with very low UAC (network effects). At the time of the acquisition, 2021E revenue was stated to be SEK 270-310m and the EBIT margin around 70%. The acquisition cost USD 205m (vs. Stillfront’s current market cap of approx. USD 350m) or 8.9x EV/EBIT (midpoint of forecast). In addition, Stillfront pays sellers 1x EBIT in earn-outs based on 2022-2026 results in July of the following year. What makes the situation interesting is that Jawaker is the only acquisition for which Stillfront will still pay additional purchase price after this summer, which in turn allows for the current EBIT to be bracketed from the reported earn-out liabilities. The forecast and discounted earn-outs due in 2026 are SEK 578m. Assuming a 10% discount rate, Jawaker’s 2025E EBIT is SEK 636m. Since we are clearly talking about a gaming studio that stands out from the rest of the gaming market, is based in the Middle East (money is plentiful
), growing at 30%, and generating a 70% EBIT margin, I believe a valuation multiple of 10x without additional purchase price does not seem particularly strange – this would make the price SEK 6.4bn (or USD 678m). This compares to the current SEK 7.9bn enterprise value, of which SEK 4.6bn is net debt. Using a 70% EBIT margin, Jawaker’s revenue can be estimated at approximately SEK 900m, which compares to the approximately SEK 5.9bn 2025 revenue forecast for the entire group – although at the EBIT level, the forecast is only about SEK 1.2bn, which indicates the poor profitability of the rest of the group and the need for restructuring (which is discussed in point 2.). -
New management is conducting a strategic review, actions and statements are convincing
When former COO Alexis Bonte took over as Group CEO in early 2025 after the founder/CEO was dismissed, the company immediately began a comprehensive organizational restructuring. The first item on the agenda was segment reporting by three continents (which revealed a growing and profitable Asia/Middle East, Europe as a focus of investment, and weak growth and profitability in the United States). The first actions of the SEK 250m cost-saving program (whose run-rate savings were achieved in two quarters) were the closure of two unprofitable US studios and the transfer of games to lower-cost studios (temporarily negatively impacting Q2 revenue in particular). In May 2025, the stock price temporarily gained momentum as the company initiated a strategic review, including potential divestments, with Carnegie investment bank – which every finance professional knows as one of the most aggressive in the Nordics – and Aream, a sector specialist who facilitated Jawaker’s earlier deal. Taking into account point 1 of my text (Jawaker’s value), in addition to the strategic review, two interesting observations must be mentioned: 1) Jawaker’s management and founders consolidated their ownership under one holding company in late summer, now owning over 10% of Stillfront; 2) The board has not authorized share buybacks, which have been running for over a year since the Q2 report, to cover earn-out payments, even though management stated in the Q2 call that they see the stock as undervalued and the company will continue to generate high cash flow (LTM FCF SEK 1.1bn) – does the board have information on the table that could significantly affect the stock price?
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Very strong cash flow / low valuation and reasonably low cost of debt
As mentioned, approximately 60% of the enterprise value is net debt. However, the company generates approximately SEK 1.1bn in free cash flow after interest expenses, and its net debt/EBITDA is only 2.2x – for a highly diversified portfolio requiring little investment, this seems reasonable. The debt market thinks similarly, pricing the latest unsecured bonds at S+365bps at the end of 2024, and the bonds are currently trading above par (around 100.6%) – so no stress can be observed. The current cash flow (SEK 1.1bn) translates to a 33% FCFE yield for a SEK 3.3bn market cap, which, of course, predicts the company’s crisis or collapse. Many parties, of course, include the two upcoming earn-out payments in the cash flow, which halves the figure. In my opinion, however, including one-time payments (which will end in less than 2 years) when valuing for eternity is simply a flawed idea. On the other hand, a collapse of cash flow within 2 years in a situation where gross margins have been improved (transition from 3rd party payment solutions to DTC channel) and the company’s fixed costs are being driven down at an accelerating pace is unlikely. Investors are, of course, particularly concerned about the very weak revenue growth figures seen in H1, but taking into account the phase-out of the “legacy” portfolio, game development investments halved since 2022, the US restructuring in H1, the major launch of the significant Albion game in Q1 (strong comparison period), and the previous new game launch in Q3/Q4 2023, a stronger development can be projected for the future after the restructuring ends and new game releases / expansions come out of the pipeline (e.g., Supremacy Warhammer 40k in November 2025). All in all, not much needs to be paid for the current results (2025E adj. EV/EBIT 6.5x and adj. P/E 4x).
Finally, a disclaimer that investing in a serial underperformer, which happens to be indebted and has declining revenue for the last 3 years, is more than at your own risk, and I would gladly hear constructive challenges to the likely errors in my thinking. This can also be leveraged in Nordnet with a frightening 70% collateral rate, although I wouldn’t equate this risk to that of an apartment share in downtown Helsinki