Valuing SDVI (part 3, lol)
Okay, I think I've got a much better handle on the valuation of SDVI this time. It's a process of learning and growing, as I've come to realize that I need to focus less on the assets and more on the earnings projections from the last VCC (even though I'm skeptical of the numbers given, it's the best guess we have, and I'll lowball them all to be safe and conservative). So here goes:
First, guessing the earnings per share of a future SDVI following the Social Gaming business model. Following numbers are from the powerpoint slide of Ken's, with any modifications being marked as mine (brackets denote mine).
Expected games funded by SDVI per year: 4 - 6 (I will use 4)
number given for games funded by outsiders (I will use 4 as well)
Expected Revenue per month per game: $350,000
Expected monthly revenues for self-funded games: using 70/30 split, would get 105,000 per month (x4 games x 12 months = $5.04M/year)
Expected monthly revenue per SDVI funded games: using 50/50 split, we would get 175,000 per month. (x4 games x12 months = $8.4M/year)
Revenues from other SDVI sources (forcing achievements for console games, etc) = unknown, so will ignore for this analysis. Assuming breakeven on these sources, no loss no gain.
Total expected revenue per year = $13.44M
Costs: $300,000 per game x 12 games = $3.6M
Maintenance costs per month per game = unknown (personal estimate = $2M for basic maintenance of system, company, salaries, etc, per year. Erring on side of too high purposefully)
Net Earnings = 13.44-3.6 (CGS) (-2.0M Operating costs) = $7.84M/year
Earnings per share = $7.84M / 1.5B shares = 0.0052/share
P/E multiple given: ? unknown? Ken has mentioned 6x with reference to Graffiti, so will assume that is media/gaming industry average. (as we are pink sheets, even with OTCBB, will assume lower multiple 3x P/E for this case)
P/E x Earnings per share = Market price
3 x .0052 = 0.0156/share which is about 7-8x current market price. This is based on earnings projections from Ken's slides, so is (hopefully) as close to accurate as we can estimate. Also, I have lowballed a number of figures to be on the safe side, and it still shows a high degree of profit for buying shares at todays prices.
Risks: Operating costs could be much higher for maintenance. Revenues could be much less than predicted, and zero outside developers may want to create games with us (leaving us with just the 5 SDVI games, until our 'brand' has built up more). Also, slides said that it takes about 2 months for games to be profitable, so revenue projections I made above were for games that have 12 full months of profitability; I would expect profitability to decline after 3 - 6 months for most games (even farmville will taper off).
Please critique, point out math errors, as $hit happens.
EDIT: Forgot to add the royalty income, 10% of Graffiti. A few posts back I calculated it at around 800k - $1M (atleast for the next year 2011, hopefully much more in the future when more games roll out). This would add another 0.0016 to the market price of Sig in the above calculations (ironically, that's almost the price it already trades at, lol).
+++++++++++++++++++++++
On the issue of Outstanding shares: Assuming Ken's P/E expectation of around 6x applies to SDVI, then with 1.5B outstanding shares, the only way for us to hit the big money of a share price at 0.02 or higher, would be for net earnings to = around $5M per year, which is possible. But rather than betting on the market giving us a generous P/E, I'd prefer we lower the Outstanding shares with constant buybacks. With an O/S of only 1B, that $5M in earnings would give us a share price of 0.03, a 50% gain over 0.02. Buying 500M shares could happen for $2.5M at an average price of 0.005. SDVI uses up some of it's $20M payout from graffiti, and increases earnings per share by 33% for the next 10 years as a result. Good long term deal. Gotta happen though before the price catches up with where it should be, so he's eager as all hell to get some money from RR and spend it on this and the audits (I hope).
Cheers,
Saredi
