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Team17 results beat expectations
Team17 (TM17:AIM) 240p
Loss to date: 4%
Original entry point: Buy at 250p, 5 July 2018
A strong set of full year results from computer games developer Team17 (TM17:AIM) on 19 March have helped the shares get back within sight of our 250p entry price.
Revenue was up 46% to £43.2m off the back of some successful releases including Overcooked 2 with adjusted earnings of £15m beating the consensus forecast of £14m.
Gross margins fell from 57% in 2017 to 46%, but this reflected a lack of new games based on its own intellectual property with an acceleration of third-party IP games being released through its Games Label platform.
Games Label allows independent developers to bring their games to market under a revenue sharing model and we are relaxed about the resulting pressure on margins given the growth potential and diversification benefits this offers.
More than half of its revenue came from its back catalogue of purchase-to-play games with sales of these titles up 42% to £22m year-on-year. This part of the business is lucrative as it requires limited development and marketing spend.
The shares have endured a bumpy ride in the past six months amid wider market volatility and in the face of weak performance from some leading game developers as well as the threat posed by free-to-play games, most notably Fortnite.