With the Ys coming out this month and Remake coming out in less than two months, any sense of how things are shaking out now?
The Sky FC Remake looks great, and the promo videos seem to have racked up a pretty decent amount of views on YouTube. I feel like it wouldn't be a shock if it does 1.5-3x the amount a new release like Daybreak does as this is a game that all audiences can play as opposed to the increasingly niche new releases that require playing 10+ games before. On the other hand, correct me if I'm wrong, but Ys might be disappointing and not a full release potential for sales since it isn't going to be a brand new game.
Nonetheless, this seems like a pretty interesting opportunity before the Sky FC remake launches, and with how clean the balance sheet and cheap the multiple is, it feels like there is very little downside with the stock. 3x EV / FCF means 3 years and you'll make back all your investment in just cash flow generation. The R/R seems quite good here, but these types of opportunities usually have something else keeping it cheap. What do you think could go wrong here?
Indeed, I would be surprised if it doesn't do 2-3x what a new release does in the last few years, and it should bump up the sales of the rest as well.
As for what could go wrong... slow death. Sky FC doesn't work to revitalise the brand, and sales of new releases keep winding down (as they have since cold steel). IMHO, good r/r anyway
Even if the IPs are winding down in terms of interest and sales, they still make decent cash (albeit decreasing) every year. It still would only take 3-4 years for the cash generation itself to make whole the enterprise value of the company. The stock is essentially attributing 0 terminal value to the IP as is right now, but idk if this is a common situation for Japanese companies (vs pretty aggressive terminal valuations in the US).
I typically have only looked at US companies before, and not usually micro cap ones. Do you mind educating me if it is common for Japanese companies to hoard cash like this... or is Nihon Falcom the anomoly? Maybe Japanese investors are just unwilling to ascribe any real value in general to cash/imprudent capital allocation?
Seems like FX risk (US investor) is probably the biggest risk to the downside here if the Yen ends up being weaker to offset tariffs or the carry trade comes back into effect (unlikely in size due to interest rates being above 0% now).
Yeah, I understand those doubts, and honestly I think before investing in any Japanese stock you should have a read on different stuff there to get a feel for how things are.
Accumulation of cash is common enough to be a trope, although things are improving and repurchases, dividends or M&A are becoming more and more common thanks to the regulator's efforts (Michael Fritzell at Asian Century Stocks has written extensively about this).
You won't find the same level of optimism regarding terminal value of IP in any non-US company, save those with a lot of US investors in the shareholder base (CD Projekt or Nintendo for example, depending on the time).
But do read a few pitches about Japanese companies. Have a few here, you can find a lot of good ones at Altay Capital and Made in Japan too, for example. That way you can see that cash hoarding is a common theme and that IP valuation is much lower (partly because monetization has historically been worse), so you typically have to think there is potential for a change in cash policy (in this case, the founder's death, grim as it sounds) or a catalyst for earnings (Trails in the Sky FC remake + increased throughput in general + increased popularity in the West in this case). Alternatively, you can just buy deeply undervalued stuff and sit tight, and sometimes things work out really well, especially given that many companies are getting religion on buybacks and returning cash in the last couple of years.
A bit late to the party, but thanks for the write up. The (web)way crackled me up.
Thank you! Had to make that joke!
With the Ys coming out this month and Remake coming out in less than two months, any sense of how things are shaking out now?
The Sky FC Remake looks great, and the promo videos seem to have racked up a pretty decent amount of views on YouTube. I feel like it wouldn't be a shock if it does 1.5-3x the amount a new release like Daybreak does as this is a game that all audiences can play as opposed to the increasingly niche new releases that require playing 10+ games before. On the other hand, correct me if I'm wrong, but Ys might be disappointing and not a full release potential for sales since it isn't going to be a brand new game.
Nonetheless, this seems like a pretty interesting opportunity before the Sky FC remake launches, and with how clean the balance sheet and cheap the multiple is, it feels like there is very little downside with the stock. 3x EV / FCF means 3 years and you'll make back all your investment in just cash flow generation. The R/R seems quite good here, but these types of opportunities usually have something else keeping it cheap. What do you think could go wrong here?
Indeed, I would be surprised if it doesn't do 2-3x what a new release does in the last few years, and it should bump up the sales of the rest as well.
As for what could go wrong... slow death. Sky FC doesn't work to revitalise the brand, and sales of new releases keep winding down (as they have since cold steel). IMHO, good r/r anyway
Even if the IPs are winding down in terms of interest and sales, they still make decent cash (albeit decreasing) every year. It still would only take 3-4 years for the cash generation itself to make whole the enterprise value of the company. The stock is essentially attributing 0 terminal value to the IP as is right now, but idk if this is a common situation for Japanese companies (vs pretty aggressive terminal valuations in the US).
I typically have only looked at US companies before, and not usually micro cap ones. Do you mind educating me if it is common for Japanese companies to hoard cash like this... or is Nihon Falcom the anomoly? Maybe Japanese investors are just unwilling to ascribe any real value in general to cash/imprudent capital allocation?
Seems like FX risk (US investor) is probably the biggest risk to the downside here if the Yen ends up being weaker to offset tariffs or the carry trade comes back into effect (unlikely in size due to interest rates being above 0% now).
Yeah, I understand those doubts, and honestly I think before investing in any Japanese stock you should have a read on different stuff there to get a feel for how things are.
Accumulation of cash is common enough to be a trope, although things are improving and repurchases, dividends or M&A are becoming more and more common thanks to the regulator's efforts (Michael Fritzell at Asian Century Stocks has written extensively about this).
You won't find the same level of optimism regarding terminal value of IP in any non-US company, save those with a lot of US investors in the shareholder base (CD Projekt or Nintendo for example, depending on the time).
But do read a few pitches about Japanese companies. Have a few here, you can find a lot of good ones at Altay Capital and Made in Japan too, for example. That way you can see that cash hoarding is a common theme and that IP valuation is much lower (partly because monetization has historically been worse), so you typically have to think there is potential for a change in cash policy (in this case, the founder's death, grim as it sounds) or a catalyst for earnings (Trails in the Sky FC remake + increased throughput in general + increased popularity in the West in this case). Alternatively, you can just buy deeply undervalued stuff and sit tight, and sometimes things work out really well, especially given that many companies are getting religion on buybacks and returning cash in the last couple of years.