Tapinator, Inc. (TAPM) INITIATING COVERAGE (May 20, 2019) Coverage on... · 2019. 5. 31. · Crypto Trillionaire: iOS Snapshot Source: Company 0.0 Europe,Middle East,Africa, 28.7

Equity Research | Tapinator, Inc. (OTCQB: TAPM)

AVISE ANALYTICS

The information contained in this report is to be read in conjunction with other important disclosures at the end of this document.

Investment Rationale Financial Forecasts & Valuation Metrics

Risks

Share Price Chart

Avi [email protected]

Head of Research | +1 (404) 793-0360

INITIATING COVERAGE (May 20, 2019)

Equity | Gaming & Multimedia

Tapinator, Inc. (TAPM)Redefining Gaming Culture(OTCQB: TAPM, Target Price: $0.125)

Key Highlights RECOMMENDATION

Umesh [email protected] Research Associate

Yielding High Growth through Strategic ShiftTapinator will continue to focus on investing in thedevelopment and marketing of “Category Leading Apps,” thathave proven to be significant growth drivers, with recentsegment bookings registering a 300% growth rate. Thesuccessful launch of top rated, highly engaging games andapps with advanced graphic updates should further strengthenits position in the foreseeable future.Established Portfolio with Recurring RevenueThe Company enjoys a steady stream of recurring revenuesfrom its robust portfolio of Rapid-Launch games including over300 active titles, of which, 100 have achieved more than amillion player downloads to date. In-game advertising is theprimary monetization method for Rapid-Launch games andwith a portfolio that historically has generated a return of 3.8xits investment, Tapinator offers a lucrative risk return profile.Potential Subscription-based ProductIt launched its second non-gaming, subscription based mobileapplication “My Horoscope,” in March 2019 to diversify itsinterests and tap into an estimated $2.0 billion market forsupernatural and psychic services. The size and importance ofthe millennial population, coupled with the convenience offeredby digitization and modernization of services has led to a spurin investments by leading venture capital firms and big-moneyinvestors in the Astrology and Horoscope category.

INVESTMENT VIEWA persistent focus on engaging gamers through severalevergreen, Category Leading Apps, such as “Video PokerClassic”, “Crypto Trillionaire”, and “Solitaire Dash”, will allowthe Company to further strengthen its position in the mobilegaming market. However, a competitive landscape and itsdeclining advertising revenue related to it’s legacy Rapid-Launch games segment remain a concern. We assume strongrecurring business, significant cost optimization and global roll-out of its ambitious products to be its key growth drivers. Weadopt DCF valuation to arrive at a price target of $0.125/share,discounted at a WACC of 22.5%.

• Tapinator’s share in the social casino gaming space maydecline as the competition continue to intensify.

• The Company depends on a very small portion of its totalplayers for nearly all its revenue from in-app purchases.

• It may fail to incorporate advertisements and offers into itsfree-to-play games thus affecting its growth strategy.

0

500

1,000

1,500

$0.00

$0.08

$0.16

May

18

Jul 1

8

Sep

18

Nov

18

Jan

19

Mar

19

May

19

Vol ('000s) TAPM ($)

Source: Yahoo Finance, Avise Analytics Research

• Tapinator reported impressive Q1 results, highlighted by139% y/y growth in “Category Leading Apps” bookings

• In April 2019, Company launched a major update to “VideoPoker Classic”, the top video poker game on mobile

• Following the successful launch of Crypto Trillionaire oniOS, the game reached #89 Top Grossing for StrategyGames in the United States

• Completed soft launch of “My Horoscope” on iOS

• At the end of financial year 2018, cumulative downloads ofall titles reached to 463 million

• We are initiating coverage on Tapinator with a 1-year pricetarget of $0.125.

Y/e FY FY18A FY19F FY20F FY21FRevenue ($ in M) 2.87 4.72 6.50 8.45

% Growth (Y-o-Y) (8.6%) 64.3% 37.6% 30.1%

GP Margin(%) 69.2% 68.4% 68.4% 68.5%EBITDA Margin(%) 4.6% 27.5% 34.4% 38.6%PAT ($ in M) (1.13) 0.18 0.89 1.91Net Profit Margin(%) (39.4%) 3.8% 13.7% 22.7%EV/Sales (x) 0.3 0.6 0.4 0.3EV/EBITDA (x) -1.2 12.0 2.4 1.1P/BV (x) 1.6 3.0 1.7 0.8RoCE(%) 25.9% 90.3% 116.0% 96.3%

Source: Company, Avise Analytics estimates

Recommendation Initiation Report

Risk Rating High

Current Share Price (05/17/2019) $0.040

Shares Outstanding 87.98 M

12 Month Price Target $0.125

Total Return (Capital + Yield) 313%

DCF Valuation $0.125

Market capitalisation $3.519 M

Average Volume 104.3K

52-Week High/Low $0.0155 - $0.1150

Source: Yahoo Finance, Avise Analytics Research


AVISE ANALYTICS


Tapinator, Inc. develops and publishes category leading mobile games and applications on theiOS, Google Play, and Amazon platforms in North America, Europe, and Asia. Its portfolio includesover 300 mobile game titles that have collectively achieved over 450 million mobile downloads,including notable properties such as Video Poker Classic, Crypto Trillionaire and Solitaire Dash.

Founded in 2013, Tapinator is headquartered in New York, with product development andmarketing teams located in North America, Europe and Asia.

Tapinator generates revenues through the sale of branded advertisements and viaconsumer transactions, including in-app purchases and subscriptions.

Overview

Mobile Game Portfolio

1

Revenue Model

Source: Company

Rapid-launch Games Category Leading Mobile Apps

2014

üReverse merger into a public entity

üFocus on Rapid-Launch Games strategy

2015

üTapinator ends the year with 183 games and 166 million player downloads

2016

üTapinator launches Video Poker Classic, its first successful Category Leading App

2017

üTapinator shifts strategy to focus on Category Leading Apps with the launch of Solitaire Dash and Dice Mage

2018

üCheetah Mobile (NYSE: CMCM) partnership -Strategy expands to include subscriptions

üRaised $3.0mm using common stock at $0.12 /share

2019

ü Tapinator launches Crypto Trillionaire and My Horoscope

Source: Company

Key Milestone


AVISE ANALYTICS


Tapinator will continue to invest in the lucrative and engaging full featured games opportunityrather than in rapid-launch or casual games to monetize in-app users spending, which is growing ata double-digit growth rate. The Company began its strategic shift in early 2017 which resulted inyielding ~200% growth in its category leading app booking in the same year. It is betting big on itsrecent Category Leading App launch and upcoming major updates to some of its category leadinggames.

The proliferation of easy-to-use touch-based smartphones and tablets has created a market withunique characteristics and explosive growth for mobile apps and games, in particular.

Gaming Market to Reach $180bn by 2021Since the birth of video games in the 1970s, with games like Pong and home consoles such as theMagnavox Odyssey, the games market has taken 35+ years to grow to a $35 billion business in2007. In 2018, that gaming market is expected to have generated $137.9 billion in revenues.Whereas, it generated an additional value of astounding $100 billion in just 11 years, all thanks tothe rise of smartphone users. As per latest report published by New Zoo, the consumer spendingon games is projected to reach $180.1bn by 2022, a CAGR of 11%, between 2012 to 2021

Source: Newzoo

Mobile Gaming Market Increasing at a CAGR of +26.8%With the rapidly increasing smartphone penetration, mobile gaming is now the largest segment inthe gaming industry, contributing to more than half of all global game revenues. Combined,smartphone and tablet gaming is estimated to have generated as much as $70.3 billion in 2018,which is almost 51% of the total global gaming market. During the same year, the number ofgamers reached a massive 2.3+ billion globally with over ~96% of gamers using smartphones.

According to the research firm, Newzoo, in the span of a decade, mobile gaming will have grownfrom a miniscule segment in 2012 to a $100 billion industry by 2021. In the coming years, mobilegaming revenue growth will continue to outpace the overall games market, growing to $106.4billion by 2021. By then, smartphone and tablet games combined will generate 59% of therevenues of the entire market.

2

Yielding High Growth through Strategic Shift

Gaming has evolved into an all-around entertainment phenomenon. If you add up all playing and viewing hours, gaming is the world’s favourite pastime. CAGR of 11%

Mobile Games to Outpace Overall Games Market

Source: Newzoo

13 18 2532

4356

7082

95106

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mobile Gaming Market ($ bn)

Console , $34.60bnBrowser pc,

$4.30bn

Tablet , $13.90bn

Downloaded/Boxed pc, $28.60bn

Smart phone, $56.40bn

Contribution Per Segment (2018)

Changing Dynamics of the Global Gaming Industry

$71 $77$85

$93$107

$122

$138$152

$166$180

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

23% 21% 20% 19% 18%

4% 3% 2% 2% 1%

27% 25% 24% 22% 22%

10% 10% 10% 10% 10%

36% 41% 44% 47% 49%

2017 2018 2019 2020 2021

Downloaded/Boxed pc Browser pcConsole TabletSmart phone

Global Gaming Market Segment Breakdown Of Global Games Revenues


AVISE ANALYTICS


Mobile Games Accounts for 80% of Revenue in the App StoresAccording to a latest (2018) report from app store intelligence firm, Sensor Tower, consumerspending in mobile apps across both Apple’s App Store and Google Play is projected to grow by120% to reach $156 billion worldwide by 2023, with around 80% of revenue share will come fromgaming segment across both the app stores.

.

Revenue Model for Mobile Gaming IndustryThe mobile gaming industry today relies primarily on a revenue model known as “free-to-play”(“F2P”) or “freemium,” which means that the games are free to download and play. Unliketraditional console-based video games that are sold for a fixed retail price, the revenues from F2Pmobile games are generated through a combination of in-game purchases (wherein the userpurchases additional premium content, functionality or in-game currency with which they canimprove or extend the gameplay), and advertisements served within the game.

In-App Purchase Contributes 53% of Games RevenueIn-app purchases are gradually taking over other gaming monetization models. According to thelatest report published by Gartner (TechCrunch), in 2018, in- app purchases in mobile gamesaccounted for 53% of mobile app earnings as compared to 13% from ads-based revenue and 34%from paid app downloads.

Consumer App Store Transaction Gaining TractionThe Company has an excellent track record of successfully getting their category leading appsfeatured at launch by their major app stores, including within Apple’s “New Game We Love”.Beginning with its initial investments into its Category Leading Apps, the Company has receivedexcellent consumer response to its products.

Some of its first Category Leading Apps such as “Video Poker Classic” and “Solitaire Dash”,became major hit titles in the app stores within a short span of time. This resulted in a triple-digitbookings growth in its Consumer App store transactions.

Video Poker Classic - Top Ranked Poker Game on IOSFollowing the initial launch, “Video Poker Classic” became one of the top three poker games oniOS and is one of the leading video poker properties on Google Play and the Amazon Appstore.

3

87%

2%

2%2%

1% 1%

5%

Google Play Store (2018)

Games social Lifestyle EntertainmentCommunication Productivity Other

71%

7%

5%

3%3%

2%9%

App Store (2018)

Source: Sensor Tower

7285

104123

141156

2018 2019 2020 2021 2022 2023

Consumer App Store RevenueUSD in Billion

Worldwide Consumer App Store Spending

+16.8 CAGR

1.14 2.64 5.41 9.5017.04 21.67

37.68

0.64 1.231.72

2.22

4.265.53

9.14

11.5613.72

17.4619.94

21.3018.90

23.48

2012 2013 2014 2015 2016 2017 2018

In-App Purchase(amt) Advertise revenue(amt) Paid app downloads(amt)

App Store Mobile Game Revenue Distribution (USD in Billion)

Source: Gartner, TechCrunch


AVISE ANALYTICS


On iOS, the title maintains over 25,000 reviews with an average score of 4.7 out of 5.0. One of themain reason behind its success is that it consistently offers a real-world casino experience.

Video Poker Classic is currently ranked amongst the Top 150 in Downloads and Top 100 inGrossing within the Casino category on iOS. Casino games are one of the top monetizing games,because of the genre the games are based on. Mobile casino games are initially free to play.However, consumers are encouraged to make additional transactions to get game credits or virtualcurrency to play the game for a longer period.

Bookings Soared by 198%The strategic shift to Category Leading Apps in 2017 resulted in a record-breaking financialperformance. The bookings from this segment have grown from $0.43 million in 2016 to $1.28million in 2017, witnessing a staggering growth rate of almost 200%. In addition the consumer appstore transactions, for the same period, increased from $0.74 million to $1.34 million, with a growthrate of nearly 100%. The Company witnessed a solid top-line growth mainly due to the success inthe Casino category.

Raised $3 Million to Continue its GrowthThe growing consumer interest in Category Leading Apps has led the Company to continueinvesting in this segment. In 2017, it successfully raised an equity capital of $3 million, to developnew portfolio of more engaging games and updating the existing ones in the same category.

Video Poker Classic 2.0 (Launched in April 2019)It recently launched a major update to Video Poker Classic to further improve the gamingexperience. This could change the dynamics of the company with ever growing social casinomarket.

4

Video Poker Classic 2.0 - Featured with Multi-hand Game Play

Source: Company

Source: Company

Snapshot of Video Poker Classic

Bookings From Category Leading Apps

Source: Company

0.74

1.34

1.72

2016 2017 2018

0.35

0.92

1.22

2016 2017 2018

Consumer App Store Transactions(USD in Million)

Category Leading App Revenue(USD in Million)

Ratings on App Store

4.7

out of 5 24.2K Ratings


AVISE ANALYTICS

The information contained in this report is to be read in conjunction with other important disclosures at the end of this document. 5

Video Poker Classic, version 2.0, has been redesigned with exciting features to match the formatof real-world casinos, that of multi-hand gameplay. It introduced Triple Play, Five Play, and TenPlay for all its 39 game types. According to the Company, Video Poker Classic 2.0 currently hasthe richest offering of any video poker title on mobile with regards to game types and functionality.This update will help the Company to maintain its dominant position in the Video Poker gamecategory on mobile.

Social Casino Market was at $5.2 Billion in 2018Video Poker gamers who are engaged in transactions, reportedly have a higher level of impulsivityand reward sensitivity. As a result, such games have the potential to generate multi-billion dollarrevenue.

To quantify the size of the video poker market, we may look at certain gaming jurisdictions, such asLouisiana and Illinois, that have published data on video poker revenue. In 2013, Louisiana’sadjusted gross video poker revenue was over $600 million and represented 20% of the state’s netdaily gaming revenue. In Illinois in 2013, video poker revenue was about $300 million relative toabout $1.5 billion in adjusted gross casino revenue. According to the research firm, Eliers & Krejcik,the revenue for the social casino market reached $5.2 billion in 2018. We forecast social casinomarket, which is growing at 5% y/y, to reach $6.4 billion by 2021.

Global Distribution Deal for Solitaire Dash with Cheetah MobileDuring 2018, the Company successfully entered into a distribution agreement with Cheetah Mobile(a China based company, traded on the New York Stock Exchange) for Solitaire Dash, to furtherexpand its market reach. Under the four-year initial agreement, Cheetah will own exclusiveworldwide distribution rights for all mobile versions of the Solitaire Dash game.

Unique Features Added with its Major UpdateSolitaire Dash is a horse-racing themed, tri-peaks solitaire mobile game of Tapinator, which wasoriginally launched in 2017,. It recently received a significant update for its 2.0 version. In this newversion, user interface was completely redesigned in the form of a map to visually represent playerprogress. This redesign has resulted in a map featuring 324 unique levels across 18 racetracks.Players now have many additional ways to increase earning potential and in-game rewards,including purses for completing racetracks and "sponsorships" that are awarded for completing in-game content.

Potential Game Changing Deal For TapinatorBased in Beijing, Cheetah Mobile sports a $1.2-billion market capitalization. The deal with CheetahMobile will help the Company to increase its user base globally in Solitaire game. Cheetah Mobileprovides leading apps for mobile users worldwide and connects users with personalized contentpowered by artificial intelligence.

Cheetah Mobile has attracted approximately 600 million global MAUs in more than 200 countriesand regions. Approximately, 30% percent of the users come from China and 70% are locatedoutside of China. According to the report published by New Zoo, 52% of total global game revenuecomes from Asia-Pacific region, China being the most dominant region.

Snapshot of Solitaire Dash 2.0

Source: Company

Social Casino Market Growing at 26% CAGR

1.33

3.46

5.2

6.42

2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F

Figures are in ($Bn)

Source: Eilers & Krejcik, Avise Analytics Research

Social Casino Market witnessed a growth of 26% CAGR between 2012-2018


4.7



AVISE ANALYTICS


Assuming, this deal will help Tapinator to further penetrate into the Chinese gaming market, weestimate that this game would significantly contribute to its future revenue.

First Crypto Trillionaire Themed Mobile GameThe Company recently launched its new crypto themed mobile game, “Crypto Trillionaire” to furtherstrengthen its portfolio of full featured games. Following its global launch on iOS, Crypto Trillionairewas featured in Apple as a “New Game We Love,” in 152 countries, including the United States.

Reached #3 Top Strategy Games in the United StatesCrypto Trillionaire is a best-in-class idle tapper with a fun cryptocurrency theme (there is no use ofactual cryptocurrency in the game). Crypto Trillionaire achieved the #3 spot on top strategy gamesin the United States. It was in the Top 100 Grossing charts for Strategy Games in the United Statesand is a top three search result for the term “crypto” in the App Store . So far, the game hasgenerated more than 300K player downloads and achieved an excellent rating of 4.8 out of 5 stars,based on 4400+ reviews.

In February, Company released a significant update to the game with multitude of new functionalityincluding vehicles upgrades, unlockable skins, and new/premium characters. This game cansignificantly contribute to its booking results in 2019.

Category Leading Apps is the Way Future for TapinatorAccording to our estimates, we expect that its recent entry into Category Leading Apps, coupledwith the increasing popularity of its hit titles such as “Video Poker Classic”, “Crypto Trillionaire”, and“Solitaire Dash”, will significantly drive the respective market and contribute to its booking results.We expect these titles to have a potential life span of 5 to 10 years. As per our forecast, we expectthe Company revenues to reach $12.3 million by 2023.

North America remains the second-largest region, taking 23% of the global games market.

Total revenues in North America is estimated at $32.7 billion in 2018, an increase of +10.0% y/y

Crypto Trillionaire: iOS Snapshot

Source: Company

0.0

Europe,Middle East,Africa, 28.7

Latin America5.0

North America32.7

Asia-Pacific71.4

Rising Games Market and Gamers (By Region)

Source: Newzoo

639

209

198

1,05

3

679

206

180

1,14

5

685

234

200

1,23

4

EMEA Latin America North America As ia P acific2016 2017 2018

Number of Gamers(in Million)

Games Market Per Region (2018)(in USD Billion)


4.8


Revenue Forecast from App Store Transactions (FY18–25F)

$1.72

2018 2019F 2020F 2021F 2022F 2023F 2024F 2025F

USD in million

Source: Company, Avise Analytics Research

$12.28


AVISE ANALYTICS


Tapinator has a successful track record of earning astonishing returns over the past few years fromits most popular legacy business of Rapid-Launch games with more than 300 active titles. DuringFY18, the rapid launch segment contributed to 57% of its total revenue. The increasing revenue infast-paced games is largely attributable to the growing in-app advertisement spending in the casualgaming category.

Growing Number of Smartphone UsersRapid Launch Games are primarily monetized through the sale of branded advertisements. Afterin-app purchase, advertisement is the second major source of revenue for a gaming company. Theincrease in in-app advertisement spending is mainly due to the increasing number of smartphoneusers. According to new report published by New Zoo, the number of people who are activelyusing smartphones are 3.3 billion, out of which 2.3 billion people play mobile games. To gain onthis situation, brand advertisers are actively investing in the mobile gaming market to advertise theirproduct.

In-App Advertisement Spending is Growing at a CAGR of 33%Among all the other gaming segments, casual mobile games are the biggest platform for brandadvertisers to market their products. According to the recent report published by Appsflyer, theglobal spending on app advertisement is expected to reach $64 billion by 2020, with a CAGR of33%.

As per the latest data published by “emarketer”, United States is a major mobile advertisementmarket and is forecasted to grow at a CAGR of 14% to reach $25 billion by 2022.

IAA is Taking Over IAP Purchase in Causal GamesAccording to the recent report from mobile marketing analytics company, AppsFlyer,advertisement revenue accounts for a smaller share in mobile revenues than IAP, both in strategyand casual games. However, the trend has changed in the casual games market, which now seesmore than half of its revenue come from advertisement. The in-app advertisements whichaccounted for 31% of the revenues in Jun’18, has now increased to 56% within six months time.With the changing dynamics of the casual games market, Tapinator is projected to strengthen itsmarket position through effective marketing efforts.

Established Portfolio with Recurring Revenue

Global Spending On Mobile Advertisement

$13$16

$19$22

$25

2018 2019 2020 2021 2022

$27

$39

$52

$64

2017 2018 2019 2020

Global App install Ad Spend(USD in Billion)

U.S Mobile Video Ad Spending(USD in Billion)

Source: AppsFlyer Source: E-marketer

CAGR of 33%

Casual Games Revenue Split (June-November 2018)

31% 35%

48%56% 58% 56%

69% 65%52%

44% 42% 44%

June July August Septemper October November

Revenue Split between IAP and IAA IAA IAP

Source: Appsflyer


AVISE ANALYTICS


Library with 300+ Rapid-Launch GamesA rapidly growing casual games advertising market, will help the Company to further strengthen themarket value of its portfolio of 300+ games. Its rapid-launch games are characterized by lowdevelopment and marketing cost with an attractive portfolio return. Its rapid launch titles were builteconomically and rapidly based on a series of internally developed, expandable and reusablegame engines. To date, these engines have been developed within the most popular game genres:parking, driving, stunts, animal sims, career sims, shooters and fighting.

Low Development Cost with Attractive ReturnsBased on the recent data published by the Company, on an average, it spends close to $6.9K onthe development of each rapid launch game and in return it makes around $26k on each game.Therefore, the Company earns a return of 3.8 times its investments.

Advertisement Revenue will Continue to Add Value for TapinatorIn 2018, around 45% of its total revenue was generated from the advertising segment, largely dueto the recurring revenue from games in the rapid launch segment.

We estimate that the rapidly growing advertising market, specifically in casual games, would largelybenefit the company in expanding its market position. We believe the company’s existing portfolioof casual games, as well as other applications, will continue to produce a long-tail of advertisementrevenues. We forecast its revenue from advertisement segment to reach $3.2 million by FY25.

Revenue Forecast from Advertising Segment for Tapinator

$1.15

2018 2019F 2020F 2021F 2022F 2023F 2024F 2025F

Advertisement Revenue (from 2018-25)

Figures are in $(mn)

$3.15

Source: Company, Avise Analytics estimates

Portfolio of Rapid Launch Games

Source: Company

Average Development Cost Per Game

$6.9K

Average Contribution Per Game

$26K

Average ROI Per Game

3.8X

Return-Risk Profile of Rapid Launch Games

Source: Company


AVISE ANALYTICS


The Company successfully launched its first non-gaming mobile application, “My Horoscope” toquickly monetize on the ever-growing astrology and psychic service market. It is an astrologybased mobile application, featuring a clean, minimalistic design that appeals to both the youngerand middle-aged demographic alike.

More than 34% of American women read their daily horoscope at least once per month and 41%share their horoscope with friends. The Company intends to charge the users for subscriptions andother interesting areas of horoscopes such as Compatibility, Birth Charts, and Numerology (asshown in the image).

The market has been there for centuries, but the industry is now entering the digital age. The risinginterest and easy accessibility of digital technology would help the the Company to rapidly capturea market share in the fast-growing astrology, horoscope, and psychic service markets. Thehoroscope category in the app stores has a proven track record of maintaining the position of top250 revenue grossing products. This application has all the essential features to become a leadinghoroscope application in the app stores. Its target is to earn an annual revenue of more than $10million, through this opportunity.

US Largest Astrology Site Engage 5.0M Unique VisitorsThe largest astrology site in the United States, “Astrology.com”, successfully engages more than 5million unique visitors per month.

As per a report published by Alexa, “Astrology.com” has a bounce rate of 43% or 3.35 millionvisitors per month. In other word, close to 112K visitors per day stays back. For every 1% ofconversion rate, nearly 1,116 people would be opting for the paid features everyday. Assuming, theaverage consumer spending at $20, the company, “Astrology.com”, earns $22.0K per day or $8.0million per year. We believe this segment could be a potential game changer for Tapinator.

9

Potential Subscription Based Product

iPhone Screenshots of “My Horoscope” App

Source: My Horoscope App, IOS App Store

iPhone Screenshots of “Horoscopes by Astrology.com” App

Source: Horoscope by Astrology.com App, IOS App Store


4.7

out of 5 271 Ratings


AVISE ANALYTICS


Astrology Application Earned $2 Million in the Month of MarchAs per the data published by Appstore intelligence Sensor Tower, Astrology & Palmistry Coachowned by Ruby Labs is the number one ranked Horoscope application in the app stores. It earneda revenue of $2.0M with 1.0 million downloads in the month of Mar’19. Followed by DailyHoroscope Plus 2019 which earned $400k with 100K downloads, during the same month.

Venture Capitalists Showing Interest in AstrologyAccording to IBIS World, a publisher of business intelligence, supernatural and psychic serviceswere a $2.0 billion market in 2018. In recent months, astrology offering apps and subscriptionservices have successfully raised money from venture capitalists and other big-money investors.

The U.S. based astrology company, Co-star, which runs an astrology-based iOS app, successfullyraised around $5.2 million seed funding from Silicon Valley venture capital firms, Maveron andAspect Ventures, 14W and Female Founder Fund. The app has been downloaded more than 3million times and on Instagram, has more than 400,000 followers.

According to Anarghya Vardhana, a partner at Maveron and a Libra, Co-Star has the potential tobe as big as Spotify, the music streaming app worth $24 billion.

Based on the changing dynamics in the astrology segment, creativity and innovation in theastrology space are gaining ground. Tapinator’s new astrology application, “My Horoscope”, is aunique addition to its product portfolio as it will help the Company to diversify its market risk andreturn. We estimate that the Company target of earning $10 million from ”My Horoscope” looksachievable in future, assuming that it will efficiently market its product and provide some uniqueand attractive features to benefit the app users.

Application Publisher Downloads Revenue

Astrology & Palmistry Coach Ruby Labs ltd 1M $2M

Daily Horoscope Plus® 2019 Tap Genius 100K $400K

LIVE Palmistry & Horoscope Devroq Apps LLC 100K $200K

Daily Horoscope App 2019 BBP APPS LTD 200K $200K

Fortunescope: Palm Reader 2019 Yumobi Tekhnolodzhi 10K $200k

Top Grossing Horoscope Products in the App Store (March 2019)


Screenshot of Co-Star Personalized Astrology



AVISE ANALYTICS


Failure to Retain Market Share in Social Casino Gaming SpaceSocial casino games have emerged as one of the most popular and profitable app categories in themobile gaming industry. To maintain its foothold in this competitive market and keep playersengaged, the Company’s management must constantly enhance, expand or upgrade its gameportfolio with new, attractive features. Any decline in the popularity of its poker games portfolio dueto launch of more successful games by the competitors, introduction of next generation virtualreality devices, regulatory issues or any other related adverse developments would negativelyimpact our revenue growth forecast and the projected operating results.

Failure to Incorporate Advertisements and Offers into its Free-to-play GamesOnline advertising, including through mobile games and other mobile applications, is a highlycompetitive industry and the Company need to maintain good relationships with advertisers to keepavailable an adequate inventory of advertisements and offers. Big companies, such as Amazon,Apple and Google, invest significantly in data analytics to make their websites and platforms moreattractive to advertisers. For the advertising business to succeed, the Company needs to continueto demonstrate the reach of its player network and success of its advertising partners. If theCompany’s relationship with any advertising partner terminates for any reason, or if the commercialterms becomes unfavourable, this would adversely affect the Company’s top-line performance.

Highly Competitive and Rapidly Changing IndustryThe mobile gaming industry is highly competitive and is characterized by frequent productintroductions, evolving consumer preferences, emerging technologies and has relatively lowbarriers to entry. Tapinator is a relatively small player in the industry. Its ability to plan for gamedevelopment, distribution and promotional activities is highly dependent on its ability to understandthe changing preference of its current and potential players and anticipate and adapt to relativelyrapidly changing technology. Failure to develop and publish timely, high-quality, engaging gamesand/or enhance its existing portfolio of games , may make it difficult for the Company to retain itsexisting players and attract new players thereby negatively impacting its growth strategy.

Greater Concentration RiskIn the mobile gaming industry, while new games are frequently introduced, a relatively smallnumber of games account for a significant portion of industry sales. Similarly, the Company isdependant on a small number of games for a significant portion of its revenue, which is likely tocontinue for the foreseeable future. The Company also relies on a very small portion of its totalplayers for nearly all of its revenue derived from in-app purchases (as opposed to advertisementsand incentivized offers). If the management fails to successfully launch games that attract andretain a significant number of players and enhance the life of its existing portfolio, it could result inoverall revenue growth slowdown and negatively impact operating results.

Heavy Reliance on Key Mobile Infrastructure ProvidersApple, Google, Amazon and Facebook are the Company’s key mobile infrastructure providers andany change/violation in their terms of service or deterioration in relationships with them is likely tomaterially impact the business and financial performance of the Company.

Risk Assessment

The Company’s Video Poker Classic has been the most popular video poker game on iOS and is a leading video poker property on both Google Play and the Amazon App.

In addition to in-app purchases, Tapinator derive a significant portion of the revenue (~45% in FY18) from its free-to-play games through advertisements and offers.

11


AVISE ANALYTICS


Ilya Nikolayev | Executive Chairman & CEOMr. Nikolayev serves as the Executive Chairman and CEO of Tapinator since June 2014. He is anaccomplished technology executive who previously served as the co-founder of InAppFuel, Inc., apatented minigame software for mobile game developers that was sold to Tapinator in 2014.

He co-founded LiveFamily Inc. (also known as, iFamily Inc.) in 2007 and served as its CEO. In2007, he created Family Tree - one of the first successful Facebook applications and grew theproperty to over 6 million monthly active unique users and 45 million total users. He raised venturecapital funding, grew the business to profitability, and successfully sold Familybuilder to Intelius in2011, generating a significant return for its investors. Prior to Familybuilder, he worked at JPMorgan Chase in their finance/banking group. Before joining JP Morgan, he worked on projectswithin the automotive aftermarket field and is the holder of several innovative patents. Mr.Nikolayev graduated cum laude with his B.A. in Economics and Politics from New York University.He received a certificate in Intellectual Property Law from New York University.

Andrew P. Merkatz | CFO, President & DirectorMr. Merkatz has been the President, Chief Financial Officer and Director at Tapinator since June2015. He is an accomplished finance executive with 20 years of experience as both an investorand operator in high growth media and technology companies and leads the Company's corporatedevelopment and acquisition strategy.

Mr. Merkatz co-Founded Familybuilder, Inc. in 2007 and served as its Chairman. From 2008-2015,he was the Managing Director of Investments at Vision Capital Advisors, LLC where he specialisedin investments in digital media and software technology. He began his career as a Private EquityAnalyst at Interlaken Capital. Prior to founding CountryRoad Capital, he served as the ManagingDirector and CFO of Verus International where he helped to raise over $50 million in equity capitaland engineered five reverse merger transactions over a 4-year period. Before joining Verus, heserved as the CEO of Predict It Inc. and served as its President. Previously, he was the COO andthe Co-Founder of SiteSpecific where he engineered the sale of a minority equity stake to Harte-Hanks Communications and subsequently led the process of its sale to Silicon Valley-based CKSGroup. He had previously served as a Director of Predict It Inc and MedPro Safety Products, Inc.He serves as a Director of Countryroad Acquisition Corp. Mr. Merkatz received his B.A. inEconomics with distinction from the University of Pennsylvania and his M.B.A. from HarvardBusiness School.

Georgi Darakev | VP of TechnologyMr. Darakev co-founded InAppFuel, Inc. and led all feature development at Familybuilder. He holdsan extensive experience in developing successful LAMP (Linux, Apache, MySQL, PHP)applications and web services. He has expertise in scaling applications on AWS, S3, andRightscale. He built products used by millions monthly on both the web and mobile. Mr. Darakevearned his BS in Computer Science from Dowling College.

Teymour Farman-Farmaian | Independent DirectorMr. Farman-Farmaian has been an Independent Director of Tapinator since December 2015 andserved as a Senior Advisor of the Company between August 2014 to January 2016. He is currentlyHead of USA at XAPO, one of the world’s largest Bitcoin custodians.

Mr. Farman-Farmaian served as Chief Acquisition and Retention Officer and CMO at Spotify, theworld’s leading music streaming service, starting in 2011 where he led a team of over 100employees and delivered triple revenue growth. Before Spotify, he worked for ~2 years with Zyngaas General Manager of Partnerships where he was responsible for Zynga's multi-billion-dollarpartnership with Facebook as well as relationships with Yahoo and Google. In this role, he helpedto launch over a dozen social games. Prior to Zynga, he worked with Google for 6 years where hejoined as Director of European Sales Operations and was instrumental in achieving ten figurerevenues. Mr. Farman-Farmaian has a BA from Duke University and an MBA from HarvardUniversity.

Management Overview


AVISE ANALYTICS


COMPARABLE COMPANY ANALYSIS

PARTICULARS Rank Tapinator, Inc.

KuuHubb Inc Atari SA Glu Mobile

Inc. Zynga Inc.Take-Two

Interactive Software,

Inc.

Electronic Arts Inc.

BASIC STATSBloomberg Ticker Symbol TAPM:US KUU:CN ATA:EN GLUU:US ZNGA:US TTWO:US EA:USCurrency USD CAD EUR USD USD USD USDShare Price (05/08/2019) 0.04 0.55 0.37 9.30 6.04 101.81 93.881-year Stock Return (%) 7 (64.1%) (26.7%) (39.1%) 76.8% 56.1% (8.5%) (24.2%)Institutional Holdings, % Shares Owned 7 1.5% 13.9% 4.9% 60.3% 79.2% 99.3% 96.2%KEY INFORMATIONRevenue (M in USD) (TTM) 2.9 13.9 22.8 381.0 964.4 2,580.0 5,290.0Net Income (M in USD) (TTM) (3.0) (13.4) 3.4 (5.3) (119.0) 367.9 1,480.0Market Cap (M in USD) 3.5 22.7 95.8 509.2 5651.1 11,302.6 27,781.5VALUATION RATIOS (x)Enterprise Value/Revenue 1 0.92 1.92 4.28 4.14 5.8 3.55 4.46Price/Book Value (MRQ) 5 7.69 5.14 11.41 2.64 2.08 5.57 8.27Price/Sales (TTM) 1 1.48 1.63 5.54 2.28 4.22 4.38 7.38Beta 7 2.10 1.52 0.667 0.82 0.42 0.98 1.07EFFICIENCY (x)Asset Turnover (TTM) 1 1.5 0.8 0.9 0.6 0.4 0.6 0.7Receivables Turnover (TTM) 3 10.7 35.1 2.3 9.6 10.3 3.9 21.5Revenue/Employee (TTM) (M) 3 0.7 2.3 1.0 0.6 0.5 0.5 0.6MANAGEMENT EFFECTIVENESS (%)Return on Assets (TTM) 7 (100.5) (80.1) 45.8 (30.5) (4.3) 9.1 16.8Return on Investment (TTM) 7 (192.9) (101.3) 113.2 (40.9) (4.9) 18.9 21.9Return on Equity (TTM) 7 (248.4) (123.5) 19.4 (44.8) (7.8) 21.5 28.6PROFITABILITY (%)Gross Margin (TTM) 3 68.6 59.2 74.7 44.1 67.2 43.6 75.0 EBITD Margin (TTM) 4 16.6 - 20.1 (34.4) (3.4) 19.2 31.4 Operating Margin (TTM) 5 (26.2) (81.4) 55.2 (46.8) (10.8) 9.2 28.0 Net profit Margin (TTM) 6 (67.6) (96.3) 50.0 (48.1) (10.5) 14.3 23.3 FINANCIAL STRENGTH (x)Current Ratio (MRQ) 5 1.0 0.1 0.9 1.2 3.4 1.4 3.0 LT Debt to Equity (MRQ) 7 84.4 0.0 27.0 0.0 0.0 0.0 22.1 Total Debt to Equity (MRQ) 7 140.7 0.5 27.0 0.0 0.0 0.0 22.1 Interest Coverage (TTM) 6 (1.3) (6.9) 1.6 - - 66.3 43.0 GROWTH RATES (%)Revenue (MRQ) vs Qtr 1 Yr. Ago 6 (4.2) (51.6) 22.1 42.0 15.1 159.7 14.0 Revenue (TTM) vs TTM 1 Yr. Ago 4 28.1 20428.5 29.4 (1.8) 3.5 34.8 12.5 EPS (TTM) vs TTM 1 Yr. Ago 5 (10.0) (27.2) 1941.8 (260.1) 5.7 85.3 3.5DIVIDENDS (%)Dividend Yield - - - - - - - -Payout Ratio (TTM) - - - - - - - -

RANK 5

Conversion rate 1 USD = 1.35 CAD

1 USD = 0.89 EUR

Source: Thomson Reuters, Market ft.com, Yahoo Finance, Bloomberg, Avise Analytics ResearchDetails as on May 08, 2019

13


AVISE ANALYTICS


QUARTERLY INCOME STATEMENT

Source: Company’s filings and Avise Analytics estimates

PARTICULARS ($ in M) 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18A 4Q18A 1Q19A 2Q19F 3Q19F 4Q19F 1Q20F 2Q20F 3Q20F 4Q20F

REVENUE

Consumer App Store Transaction 0.28 0.22 0.41 0.42 0.57 0.43 0.34 0.37 0.62 0.67 0.83 1.12 1.43 1.07 1.07 1.14

Advertising / Other 0.53 0.40 0.44 0.44 0.32 0.31 0.34 0.19 0.19 0.36 0.39 0.53 0.50 0.45 0.50 0.33

Revenue from Cont Ops 0.81 0.62 0.85 0.86 0.89 0.73 0.68 0.57 0.81 1.03 1.22 1.66 1.93 1.53 1.57 1.47

Platform Fees 0.24 0.18 0.26 0.26 0.27 0.22 0.16 0.16 0.24 0.31 0.31 0.47 0.57 0.46 0.39 0.40

Licensing + Royalties 0.01 0.01 0.05 0.02 0.02 0.03 0.01 0.01 0.06 0.02 0.04 0.00 0.04 0.05 0.03 0.02

Hosting 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.00 0.00 0.01 0.01 0.01 0.01 0.01

Total Cost of Goods Sales 0.26 0.19 0.31 0.28 0.29 0.25 0.17 0.17 0.30 0.34 0.35 0.47 0.62 0.52 0.43 0.43

Adj.Gross Profit 0.56 0.43 0.54 0.57 0.60 0.48 0.51 0.39 0.51 0.69 0.87 1.19 1.30 1.01 1.14 1.04

Research & Development 0.02 0.02 0.03 0.07 0.08 0.08 0.04 0.05 0.04 0.05 0.03 0.11 0.10 0.08 0.08 0.07

Marketing & Public Relations 0.18 0.16 0.07 0.11 0.06 0.11 0.13 0.08 0.19 0.10 0.12 0.06 0.19 0.15 0.16 0.15

General & Adminstration Expenses 0.32 0.30 0.32 0.28 0.30 0.28 0.37 0.29 0.35 0.29 0.38 0.25 0.36 0.29 0.39 0.25

Total Operating Costs & Exp 0.52 0.47 0.42 0.46 0.44 0.47 0.54 0.41 0.58 0.49 0.62 0.27 0.74 0.60 0.70 0.22

Adj.EBITDA 0.04 -0.03 0.12 0.11 0.16 0.01 (0.03) (0.02) (0.07) 0.20 0.25 0.92 0.56 0.41 0.44 0.82

D&A 0.20 0.19 0.17 0.17 0.13 0.14 0.17 0.18 0.20 0.23 0.23 0.25 0.23 0.23 0.23 0.23

Impairment of Capitalized Software - - - 0.26 - - - 0.32 0.00 0.04 0.04 0.07 0.03 0.03 0.03 0.03

Adj.EBIT (0.16) (0.22) (0.05) (0.32) 0.03 (0.13) (0.19) (0.52) (0.27) (0.06) (0.02) 0.59 0.30 0.15 0.18 0.56

Interest expense, net 0.14 0.15 0.12 0.12 0.14 0.00 0.00 0.00

Adj. PBT (0.53) (1.81) (0.45) (0.72) (0.30) (0.13) (0.19) (0.52) (0.27) (0.06) (0.02) 0.59 0.30 0.15 0.18 0.56

Income Tax Expenses (Benefits) 0.00 0.00 0.00 (0.01) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.06 0.00 0.00 0.00 0.30

Adj.Net Profit/(Loss) (0.53) (1.81) (0.45) (0.71) (0.30) (0.13) (0.19) (0.51) (0.27) (0.06) (0.02) 0.53 0.30 0.15 0.18 0.26

14


AVISE ANALYTICS


INCOME STATEMENT

PARTICULARS ($ in M) FY16A FY17A FY18A FY19F FY20F FY21F FY22F FY23F FY24F FY25F

NET REVENUE

Consumer App Store Transactions 0.74 1.34 1.72 3.74 4.72 6.38 8.38 9.72 10.93 12.28

As a % of Revenue 19.8% 42.6% 59.8% 68.7% 72.6% 75.5% 77.6% 79.6% 79.6% 79.6%

Advertising / Other 2.99 1.80 1.15 1.48 1.78 2.07 2.42 2.49 2.80 3.15

As a % of Revenue 80.2% 57.4% 40.2% 31.3% 27.4% 24.5% 22.4% 20.4% 20.4% 20.4%

Revenue from Cont Ops 3.73 3.14 2.87 4.72 6.50 8.45 10.80 12.21 13.74 15.43

y/y growth -15.8% -8.6% 64.3% 37.6% 30.1% 27.7% 22.3% 21.4% 20.6%

Platform Fees 1.11 0.93 0.81 1.32 1.82 2.37 3.03 3.42 3.85 4.33

As a % of Revenue 29.9% 29.7% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0%

Licensing + Royalties 0.04 0.09 0.07 0.11 0.15 0.20 0.25 0.28 0.32 0.36

As a % of Revenue 1.2% 2.9% 2.3% 2.3% 2.3% 2.4% 2.3% 2.3% 2.3% 2.3%

Hosting 0.01 0.01 0.01 0.02 0.03 0.03 0.04 0.05 0.06 0.06

As a % of Revenue 0.3% 0.3% 0.5% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%

Total Cost of Goods Sales 1.17 1.03 0.88 1.45 2.00 2.60 3.32 3.76 4.23 4.75

As a % of Revenue 31.3% 32.9% 30.8% 30.7% 30.8% 30.8% 30.8% 30.8% 30.8% 30.8%

Adj. Gross Profit 2.56 2.11 1.99 3.27 4.50 5.85 7.47 8.46 9.51 10.68

As a % of Revenue 68.7% 67.1% 69.2% 69.3% 69.2% 69.2% 69.2% 69.2% 69.2% 69.2%

Research & Development 0.08 0.14 0.24 0.24 0.32 0.42 0.54 0.61 0.69 0.77

As a % of Revenue 2.2% 4.5% 8.5% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Marketing & Public Relations 0.47 0.52 0.38 0.47 0.65 0.85 0.76 0.85 0.96 1.08

As a % of Revenue 12.7% 16.5% 13.2% 10.0% 10.0% 10.0% 7.00% 7.0% 7.0% 7.0%

General & Administration Expenses 1.14 1.21 1.24 1.27 1.29 1.32 1.40 1.49 1.59 1,69

As a % of Revenue 30.5% 38.5% 43.2% 26.8% 19.9% 15.6% 13.0% 12.2% 11.6% 11.0%

Total Operating Costs & Expenses 1.69 1.87 1.86 2.33 2.96 3.52 3.94 4.57 5.29 6.13

Adj. EBITDA 0.88 0.25 0.13 1.30 2.23 3.26 4.77 5.50 6.27 7.14As a % of Revenue 23.5% 7.9% 4.6% 27.5% 34.4% 38.6% 44.2% 45.0% 45.7% 46.3%

D&A 0.82 0.73 0.62 0.91 0.92 0.55 0.57 0.64 0.72 1.41

Impairment of Capitalized Software 0.00 0.26 0.32 0.15 0.12 0.16 0.30 0.45 0.60 0.75

Adj. EBIT 0.06 (0.74) (0.81) 0.24 1.19 2.55 3.90 4.41 4.95 4.98

As a % of Revenue 1.6% (23.6%) (28.3%) 5.1% 18.3% 30.2% 36.2% 36.1% 36.1% 32.3%

Interest expense, net 0.45 0.53 0.13 - - - - - - -

Amortization of debt discount 1.11 1.40 0.19 - - - - - - -

Loss on extinguishment of debt 0.77 0.83 - - - - - - - -

Income Tax Expenses (Benefits) 0.01 - - 0.06 0.30 0.64 0.98 1.10 1.24 1.24

Adj. Net Profit/(Loss) from Cont Ops (2.27) (3.51) (1.13) 0.18 0.89 1.91 2.93 3.30 3.72 3.73

PAT Attributable To Non-controlling Int - - - - - - - - - -

Adj. PAT Attributable To Shr.hldr (2.27) (3.51) (1.13) 0.18 0.89 1.91 2.93 3.30 3.72 3.73As a % of Revenue (61.0%) (111.7%) (39.4%) 3.8% 13.7% 22.7% 27.1% 27.1% 27.1% 24.2%


15


AVISE ANALYTICS


BALANCE SHEET

PARTICULARS ($ in M) FY16A FY17A FY18A FY19F FY20F FY21F FY22F FY23F FY24F FY25FAssets

Current Assets:

Cash 0.59 0.25 0.87 0.98 1.84 3.13 5.43 7.94 10.92 14.5

Accounts Receivable 0.33 0.33 0.23 0.42 0.58 0.75 0.95 1.09 1.22 1.37

Prepaid Expenses & Other Current Assets 0.05 0.18 0.22 0.28 0.38 0.52 0.66 0.74 0.84 0.94

Total Current Assets 0.97 0.76 1.31 1.68 2.81 4.40 7.04 9.76 12.97 16.81

Non-Current Assets:

Property, Plant & Equipment, net 0.02 0.01 0.01 0.00 0.00 0.01 0.01 0.02 0.03 0.03

Software Development Costs, net 1.17 1.03 0.88 0.74 0.93 1.81 2.68 3.56 4.45 4.78

Rights-to-Use Assets, net - - - 0.17 0.11 - - - - -

Investments 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

Security Deposits 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02

Total Non-Current Assets 1.22 1.07 0.91 0.88 1.02 1.84 2.72 3.60 4.51 4.84

Total Assets 2.19 1.83 2.23 2.56 3.82 6.25 9.76 13.37 17.48 21.65

Liabilities & Shareholders’ EquityCurrent Liabilities:

Accounts Payable & Accrued Expenses 0.17 0.16 0.16 0.19 0.24 0.29 0.34 0.38 0.42 0.47

Due to Related Parties 0.09 0.10 0.19 0.16 0.24 0.32 0.42 0.46 0.53 0.59

Accrued Interest 0.10 0.09 - - - - - - - -

Deferred Revenue, current 0.09 0.44 0.48 0.64 0.87 1.20 1.52 1.70 1.92 2.16

Lease Liability –short term - - - 0.06 0.06 - - - - -

Senior Convertible Debenture, net 0.16 1.32 - - - - - - - -

Total Current Liabilities 0.60 2.10 0.83 1.05 1.42 1.82 2.28 2.55 2.87 3.22

Non-Current Liabilities:

Long-Term Debt, net 0.48 - - - - - - - - -

Deferred Revenue, net - - 0.23 0.19 0.26 0.37 0.49 0.53 0.60 0.68

Lease Liability – Long term - - - 0.06 - - - - - -

Total Non-Current Liabilities 0.48 - 0.23 0.25 0.26 0.37 0.49 0.53 0.60 0.68

Total Liabilities 1.07 2.10 1.06 1.30 1.68 2.19 2.78 3.08 3.47 3.90

Shareholders' EquitySeries A convertible preferred stock 0.00 0.00 - - - - - - - -

Series A-1 convertible preferred stock - 0.00 - - - - - - - -

Series B convertible preferred stock - - - - - - - - - -

Common stock 0.06 0.06 0.09 0.09 0.09 0.09 0.09 0.09 0.09 0.09

Additional Paid-in-Capital 5.34 7.54 12.05 11.95 11.95 11.95 11.95 11.95 11.95 11.95

Retained Earnings/(Acc. Deficit) (4.28) (7.97) (10.97) (10.79 (9.89) (7.98) (5.05) (1.75) 1.97 5.70

Total Sh.holders’ (Def)/Eq 1.12 (0.38) 1.17 1.25 2.14 4.06 6.69 10.29 14.01 17.74


16


AVISE ANALYTICS


KEY RATIOSPARTICULARS FY16A FY17A FY18A FY19F FY20F FY21F FY22F FY23F FY24F FY25F

Diluted Earnings per Share (in $) (0.04) (0.06) (0.01) 0.00 0.01 0.02 0.03 0.04 0.04 0.04

Book Value per Share (in $) 0.02 0.00 0.01 0.01 0.02 0.05 0.08 0.12 0.16 0.20

Dividend Per Share (in $) - - - - - - - - - -

Payout (%) - - - - - - - - - -

LIQUIDITY RATIOSDebt/Equity Ratio (x) 0.57 - - - - - - - - -

Current Ratio (x) 1.63 0.36 1.58 1.54 1.94 2.39 3.08 3.83 4.52 5.21

TURNOVER RATIOS

Average Accounts Receivable Turnover (x) 11.4 9.5 10.2 14.5 12.9 12.7 12.6 12.0 11.9 11.9

Average Accounts Payable Turnover (x) 17.3 18.1 17.4 19.3 19.6 19.4 18.9 18.6 18.6 18.6

Average Debtor Days (days) 32 38 36 25 28 29 29 30 31 31

Average Creditors Days (days) 21 20 21 19 19 19 19 20 20 20

PROFITABILITY RATIOSEBITDA Margin 23.5% 7.9% 4.6% 5.1% 18.3% 30.2% 36.2% 36.1% 36.1% 32.3%

EBIT Margin 1.6% (23.6%) (28.3%) 27.5% 34.4% 38.6% 44.2% 45.0% 45.7% 46.3%

NPAT Margin (61.0%) (111.7%) (39.4%) 3.8% 13.7% 22.7% 27.1% 27.1% 27.1% 24.2%

Return on Capital Employed (RoCE) 55.0% 40.6% 25.9% 90.3% 116.0% 96.3% 80.6% 60.3% 49.4% 43.3%

Return on Networth (RONW) (202.9%) (940.3%) (303.5%) 15.1% 53.4% 62.3% 53.3% 38.4% 30.7% 23.6%

VALUATION RATIOS

P/E (x) -4.0 -2.8 -1.6 20.5 4.1 1.9 1.3 1.1 1.0 1.0

P/BV (x) 8.1 -35.1 1.6 3.0 1.7 0.9 0.5 0.4 0.3 0.2

EV/Sales (x) 2.5 3.4 0.3 0.6 0.4 0.3 0.3 0.2 0.2 0.2

EV/Adj. EBITDA (x) 150.6 -14.6 -1.2 12.0 2.4 1.1 0.7 0.7 0.6 0.6

Dividend Yield - - - - - - - - - -

CAPEX / Dep (x) 0.3 0.2 0.2 0.5 1.2 2.0 2.0 2.0 2.0 1.3

Total CAPEX / Sales (x) 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2

No. of Shares Outstanding (in M) = 57.0 58.5 91.0 88.0 88.0 88.0 88.0 88.0 88.0 88.0

Year end Adj. closing Share price (in $) = 0.16 0.2 0.02 0.04 0.04 0.04 0.04 0.04 0.04 0.04

Add: Debt ($ in M) = 0.6 1.3 - - - - - - - -

Minority Interest ($ in M) = - 0.10 - - - - - - - -

Preferred shares ($ in M) = 0.0 0.0 0.0 - - - - - - -

Less: Cash & Cash Equivalents ($ in M)= 0.6 0.2 0.9 0.8 0.8 0.8 0.8 0.8 0.8 0.8

Enterprise Value ($ in M) = 9.2 10.8 1.0 2.9 2.9 2.9 2.9 2.9 2.9 2.9

DU-Pont ANALYSIS

PAT /PBT 1.00 1.00 1.00 0.75 0.75 0.75 0.75 0.75 0.75 0.75

PBT/EBIT (37.30) 4.74 1.39 1.0 1.0 1.0 1.0 1.0 1.0 1.0

EBIT/Revenue 0.02 (0.24) (0.28) 0.05 0.18 0.30 0.36 0.36 0.36 0.32

Revenue/Total Assets 1.70 1.72 1.29 1.85 1.70 1.35 1.11 0.91 0.79 0.71

Total Asset/Total Equity 2.0 (4.9) 1.9 2.04 1.78 1.54 1.40 1.30 1.25 1.22

Return on Equity (RoE) (203%) (935%) (97%) 14% 42% 47% 42% 32% 27% 21%


17


AVISE ANALYTICS


VALUATIONS


PARTICULARS ($ in M) FY17A FY18A FY19F FY20F FY21F FY22F FY23F FY24F FY25FOperating Income (EBIT) (0.74) (0.81) 0.24 1.19 2.55 3.90 4.41 4.95 4.98

Less: CAPEX 0.82 0.81 0.86 1.18 1.53 1.75 1.97 2.22 2.49

Add: D & A + Impairment 0.99 0.94 1.06 1.04 0.71 0.87 1.09 1.32 2.16

Current Assets excl. cash 0.51 0.44 0.70 0.96 1.28 1.62 1.83 2.06 2.31

Less: Current Liabilities 2.10 0.83 1.05 1.42 1.82 2.28 2.55 2.87 3.22

Working Capital (1.59) (0.39) (0.35) (0.46) (0.54) (0.66) (0.72) (0.81) (0.91)

Increase/( Decrease) in Working Capital: 1.20 0.03 (0.10) (0.09) (0.12) (0.05) (0.09) (0.10)

Less: Taxes 0.00 0.00 0.06 0.30 0.64 0.98 1.10 1.24 1.24

Free Cash Flow for the Firm/Equity (1.88) 0.34 0.86 1.17 2.17 2.47 2.91 3.50Terminal Value 18.49

Present Value of Free Cash Flows 0.30 0.61 0.68 1.03 0.96 0.92 5.68

Particulars ($ in M except per Share data)

Total Present Value of Free Cash Flows 10.2

Add: Cash & cash equivalents 0.80

Less: P.V. of Total Debt o/s (as per latest filings) -

Less: Preferred Shares -

Less: Minority Interest -

Equity Value (Present Value) 10.99

Number of Shares outstanding (in M) 87.98

Target Price per Share ($) 0.125

Estimating Weighted Average Cost of Capital (WACC)

WACC Inputs

Risk-free rate 2.3%

Total Equity Risk Premium (DJUSTC) 7.0%

Beta 2.91

Cost of Equity (CAPM) 22.5%

Cost of Debt 0.0%

Statutory Tax rate 25.0%

Debt / Capital 0.0%

After Tax Cost of Debt 0.00%

WAC (Debt) 0.0%

Cost of Equity (CAPM) 22.5%

Equity / Capital 100.0%

WAC (equity) 22.5%

WACC Conclusion 22.5%

Long term growth rate (assumed) 3.0%

SENSITIVITY ANALYSISChange in Fair Value per Share with a 1% Change in WACC

WACC 21.52% 22.52% 23.52% 24.52% 25.52%

Terminal Growth % 3.00% 3.00% 3.00% 3.00% 3.00%

Fair Value ($ / Share) 0.133 0.125 0.117 0.111 0.105

Change in Fair Value per Share with a 1% Change in Terminal Growth %

WACC 22.52% 22.52% 22.52% 22.52% 22.52%

Terminal Growth % 1.000% 2.00% 3.00% 4.00% 5.00%

Fair Value ($ / Share) 0.119 0.122 0.125 0.128 0.132

VALUATION & OUTLOOK:

Tapinator, Inc. is on an accelerated growth path, havingregistered record Q1 bookings in “Category Leading Apps”segment driven by aggressive R&D, sales and marketingefforts. Mobile gaming is a lucrative and potentially ever-expanding market, since a gamers’ appetite for new games isinsatiable, a fact that Tapinator fully realizes and plans tocapitalize on. Following its successful launch of new gamesand updates, it targets to achieve a new milestone bylaunching all new social casino title in 4Q19 with extremelyhigh-end graphics, proven metagame systems and completelyunique gameplay. We are attracted toward its managementskills, excellent ratings with growing demand for its blockbustergames and attractive diversification opportunities.

We modeled 64% revenue growth year-over-year in 2019 withEBITDA margins recovering to 27.5% from almost 5% in 2018.EBITDA margins should improve through cost optimization asthe Company launches more engaging new games andupdates for its category leading apps.

Based on our analysis, TAPM currently trades at EV/Revenueof 0.9x which is well below the peer group range of 1.9x – 5.8xits revenue. We are initiating coverage on Tapinator with aprice target of $0.125 per share, achievable in 12 months,discounted at a WACC of 22.5%, using DCF valuation as ourpreferred methodology for valuing the stock, as it incorporatesour long-term view about the Company’s operations.

18


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FINANCIAL PROJECTIONS ASSUMPTIONS SHEETØ Revenue:i. Forecasting revenue from Consumer App Store transaction:We have referred Newzoo’s Global Games Market Report for the estimates of global gaming and mobile gaming market size for theperiod 2018-2021. As per latest report, the consumer spending on games is projected to reach $180.1bn by 2022, a CAGR of 11%,between 2012 to 2021 Based on the growth trends and the industry growth outlook, we assume the global gaming market to grow at aCAGR of 9.0% between 2022-2025. To estimate mobile gaming market size for the period 2022-2025, we have assumed the mobilegaming contribution to the overall gaming industry would increase by 200 basis points each year from 2021 onwards to reach 67% by2025. Next, for observing the historical trend of size of in-app purchase market in the mobile gaming market (2012-2017), we havereferred the report titled, ‘The State of In-App Spending’ by Apps flyer and based on past trend and industry outlook, we haveassumed the in-app purchase contribution proportion to rise gradually from 47.0% in 2017 to reach 75.5% in 2023 and to remainaround this level during the rest of our forecast period. This has helped us to derive the market size of in-app purchase in value termsfor the period 2018-2025. Post estimating the in-app purchase market size, we have computed the historical share of the Company’srevenue from Consumer App Store transaction in the in-app purchase market. In our valuation model, we have assumed thiscontribution ratio to increase by 0.20 basis points during FY19 and by 0.20 basis point each year for the next 3 years. Based on ourforecasted value for in-app purchase market size and the share of the Company’s segmental revenue contribution in this market, wehave computed the Company’s revenue from consumer app store transaction for the period FY2019-25.

ii. Forecasting Revenue for Advertising/Other segment:

For observing the historical trend of revenue contribution from advertisement and paid-app downloads to the mobile gaming market(2012-2017), we have referred the report titled ‘The State of In-App Spending’ by Apps flyer. Based on past trend and industryoutlook, we expect the share of advertising revenue in the mobile gaming market to rise gradually to 20% in FY23 from 12% in FY17and to remain around this level during the rest of the forecasting period. At the same time, the contribution of paid app downloads tothe mobile gaming market is expected to decline from 41% in FY17 to reach 5% in FY2023. It is further expected to remain aroundthis level during the rest of the forecast period. The above assumptions have helped us to derive the market size of the advertisingrevenue and paid app downloads market in the mobile gaming market in value terms for the period 2018-2025. Post estimating the in-app purchase market size, we have computed the historical share of the Company’s segmental revenue from advertising/others in theadvertising revenue and paid app downloads market. In our valuation model, we have assumed the combined revenue contributionfrom these two channels to gradually increase by 0.10 basis points each year during FY19-22 and to remain flat during the rest of theforecast period. Based on our forecasted value for in-app purchase market size and the share of the Company’s segmental revenuecontribution from these two sources, we have computed the Company’s revenue from advertising/others for the period FY2019-25.

PARTICULARS 2018E 2019E 2020E 2021F 2022F 2023F 2024F 2025FGlobal Games Market Projection ($ in Bn) 137.9 151.9 165.9 180.1 196.3 214.0 233.2 254.2

%Growth (Y-o-Y) 13% 10% 9% 9% 9% 9% 9% 9%

Mobile Gaming Contribution 51.0% 54.0% 57.0% 59.0% 61.0% 63.0% 65.0% 67.0%

Mobile Games Market ($ in Bn) 70.3 82.0 94.6 106.3 119.7 134.8 151.6 170.3

%Growth (Y-o-Y) 52% 17% 15% 12% 13% 13% 12% 12%

In-App Purchase (%) 53.6% 60.3% 66.0% 70.2% 73.2% 75.5% 75.5% 75.5%

%Growth (Y-o-Y) 7% 7% 6% 4% 3% 2% 0% 0%

In-App Purchase ($ in Bn) 37.7 49.5 62.4 74.6 87.7 101.7 114.4 128.5

%Growth (Y-o-Y) 74% 31% 26% 20% 18% 16% 12% 12%

Estimating Global Gaming and Mobile Gaming Market Size

PARTICULARS FY16A FY17A FY18A FY19F FY20F FY21F FY22F FY23F FY24F FY25FCompany’s Revenue Contribution to In-App Purchase 0.004% 0.006% 0.005% 0.007% 0.008% 0.009% 0.010% 0.010% 0.010% 0.010%

Revenue from Consumer App Store Transactions ($ in Mn) 0.74 1.34 1.72 3.24 4.72 6.38 8.38 9.72 10.93 12.28

Forecasting Revenue from Consumer App Store Transactions


Source: Newzoo’s Global Games Market Report, ‘The State of In-App Spending’ Report by Apps flyer and Avise Analytics Research

PARTICULARS FY18E FY19F FY20F FY21F FY22F FY23F FY24F FY25FMobile Games Market ($ in Bn) 70.3 82.0 94.6 106.3 119.7 134.8 151.6 170.3

%Growth (Y-o-Y) 52% 17% 15% 12% 13% 13% 12% 12%

Advertising Revenue (%) 13% 15% 17% 18% 19% 20% 20% 20%

%Growth (Y-o-Y) 2% 2% 3% 4% 4% 4% 4% 5%

Paid App Downloads (%) 33% 25% 17% 12% 8% 5% 5% 5%

%Growth (Y-o-Y) 8% 9% 8% 5% 4% 3% 0% 0%

Advertising Revenue ($ in Bn) 9.1 12.3 16.1 19.1 22.8 27.0 30.3 34.1

Paid App Downloads ($ in Bn) 23.5 20.2 16.1 12.6 9.3 6.1 6.9 7.7

Source: ‘The State of In-App Spending’ Report by Apps flyer and Avise Analytics Research

Estimating Global Gaming and Mobile Gaming Market Size

https://newzoo.com/solutions/standard/market-forecasts/global-games-market-report/

https://hub.appsflyer.com/hubfs/IAP_Guide/The_State_of_In-App_Spending_AppsFlyer.pdf

https://hub.appsflyer.com/hubfs/IAP_Guide/The_State_of_In-App_Spending_AppsFlyer.pdf


AVISE ANALYTICS


FINANCIAL PROJECTIONS ASSUMPTIONS SHEET

Ø Cost Of Goods Sold:As per the industry standard, the mobile application publishers are required to pay platform fees to Apple, Google and Amazonclose to ~30% of gross revenue. Based on historical trends and industry outlook, our assumptions related to cost of goods salesare as shown below:

Forecasting Revenue for the Advertising/Other Segment


PARTICULARS FY16A FY17A FY18A FY19F FY20F FY21F FY22F FY23F FY24F FY25F

Company’s Revenue Cont. to In-App Purchase 0.012% 0.007% 0.004% 0.005% 0.006% 0.007% 0.008% 0.008% 0.008% 0.008%

Revenue from Advertising/Others ($ in Mn) 2.99 1.80 1.15 1.48 1.78 2.07 2.42 2.49 2.80 3.15

PARTICULARS FY19F FY20F FY21F FY22F FY23F FY24F FY25FPlatform fees (%) 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0%

Licensing + Royalties (%) 2.3% 2.3% 2.4% 2.3% 2.3% 2.3% 2.3%

Hosting (%) 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%


PARTICULARS FY19F FY20F FY21F FY22F FY23F FY24F FY25F

R&D Expenses (%) 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Ø Operating Expenses:

• Research & Development (R&D) Expenses: We expect the Company’s R&D expenditure to be close to 5% net revenue each year.

Source: Avise Analytics estimates


Marketing & Public Relation Expenses (%) 10.0% 10.0% 10.0% 7.0% 7.0% 7.0% 7.0%



%Growth (Y-o-Y) 6.4% 6.4% 6.4% 6.4% 6.4% 6.4% 6.4%

Less: Adjustment upon adoption of ASC 842 ($ in M) (0.055) (0.055) (0.055) - - - -


• Depreciation & Amortization (D&A) Expenses: We expect the Company’s amortization charges to be close to 64.6% ofaverage opening balance of software development costs each year. We have further assumed the Company willdepreciate its property, plant & equipment (PPE) by 100% of its average opening balance each year. This is mostly in-linewith the Company’s historical trend.

• Based on management guidance, we have fully amortized the right-to-use assets during the period FY19-22.

• We have also assumed impairment charges @16.8% of average opening balance of software development costs eachyear.

Cost of Good Sales (as a % of Net Revenue)

R&D Expenses (as a % of Net Revenue)

• Marketing & Public Relations Expenses: For FY19-21, we expect the Company’s marketing and public relationsexpenditure to be close to 10% of forecasted net revenue each year. From FY22 onwards, it is expected to incur marketingand public relations expenses close to 7% of the forecasted net revenue each year.

Marketing & Public Relations Expenses (as a % of Net Revenue)

• General & Administration (G&A) Expenses: We expect the G&A expenses to increase by ~6.4% p.a. during the forecastperiod. To this, we have made an adjustment in each year during FY19-21 to eliminate the impact of rent expenses becauseof lease identification, lease classification following the adoption of ASC 842 from January 1, 2019. This adjustment is in-linewith the management guidance related to recognition of operating lease expense.

G&A Expenses (%Growth, Y-o-Y)

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Ø Financial Expenses: We expect the Company to remain debt-free during the forecasting period. Hence, no outflow on account of interest expenses.Ø Tax rate: From FY2019 onwards, we have assumed the corporate tax rate of 25% in our model.We expect the Company to be profitable from FY19 onwards and the profit margins to gradually improve to reach as high as25.9% during FY24.Ø Capital Expenditure (Capex):We expect the Company’s capital spending on software development to be ~18% of net revenue each year during FY19-22 and ~16% of net revenue during the rest of the forecast period.



PARTICULARS FY19F FY20F FY21F FY22F FY23F FY24F FY25FPPE 0.15% 0.15% 0.13% 0.13% 0.14% 0.11% 0.10%

Capitalized Software Development Costs 18.1% 18.1% 18.1% 16.1% 16.1% 16.1% 16.1%

Total Capex 18.2% 18.2% 18.2% 16.2% 16.2% 16.1% 16.1%

PARTICULARS ($ in M) FY18A FY19F FY20F FY21F FY22F FY23F FY24F FY25FCurrent Assets excl. cash 0.44 0.70 0.96 1.28 1.62 1.83 2.06 2.31

Less: Current Liabilities 0.83 1.05 1.42 1.82 2.28 2.55 2.87 3.22

Working Capital (0.39) (0.35) (0.46) (0.54) (0.66) (0.72) (0.81) (0.91)

Change in Non-Cash WC requirements 1.20 0.03 (0.10) (0.09) (0.12) (0.05) (0.09) (0.10)

WC to Net Revenue (x) (0.13) (0.07) (0.06) (0.06) (0.06) (0.06) (0.06)

PARTICULARS FY19F FY20F FY21F FY22F FY23F FY24F FY25FAmortization (As a % of average opening balance of Software Development costs)

64.6% 64.6% 64.6% 64.6% 64.6% 64.6% 64.6%

Amortization of Ready-to-use-Asset (As a % of Ready-to-use-Asset 33.3% 33.3% 33.3% - - - -

Depreciation (As a % of average opening balance of PPE) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

D&A Expenses (as a % of Net Revenue) 19.2% 14.1% 6.5% 5.2% 5.2% 5.2% 9.1%Impairment of Capitalized Software (As a % of average opening balance of Software Development costs)

16.8% 16.8% 16.8% 16.8% 16.8% 16.8% 16.8%

D&A Expenses & Impairment Charges


Ø Non-Cash Working Capital requirements:

a. Accounts Receivables (AR): For the purpose of account receivables forecast, we have debtor days of ~32.5 days based on average historical trends.

a. Accounts Payables (AP): We have assumed creditor days of ~17.6 based of on average historical trends.

Assumptions related Non-Cash Working Capital

PARTICULARS FY19F FY20F FY21F FY22F FY23F FY24F FY25FDebtor Days 32.7 32.7 32.5 32.3 32.5 32.5 32.4

Creditor Days 1.05 1.42 1.82 2.28 2.55 2.87 3.22

Non-Cash Current Asset as a % of Net Revenue 14.8% 14.8% 15.1% 15.0% 15.0% 15.0% 15.0%

Current Liabilities as a % of Net Revenue 22.3% 21.9% 21.5% 21.2% 20.85% 20.9% 20.9%

Capital Expenditure (CAPEX) (as a % of Net Revenue)


21


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Ø WACC in DCF:

For the purpose of arriving at cost of capital, we have adopted weighted average cost of capital (WACC) approach:

• Risk free rate: We have used 3-year US Treasury rate. Source: CNBC.com

• Risk premium: We have selected Dow Jones U.S. Technology Index (Ticker: DJUSTC) as the best proxy of the market index. We have considered here 1-year return. Source: us.spindices.com

• Beta: 2.91. Source: Barchart.com

• Assumed terminal growth rate: 3% p.a.

Ø Capital Structure:

• Debt: We expect the Company to remain debt-free during the forecasting period generating enough free cash flows tomeet the capex and working capital requirements each year.

• Equity: Our forecast model is based on assumption that the Company would have sufficient funds to finance futureexpansionary plans and would not resort to fresh capital raising during the forecast period.

Ø Free Cash Flow to the Firm (FCFF)

Based on our assumptions, we expect the Company to maintain a strong and expanding free-cash-flow generating profile withthe resulting cash increases being enough to fund the future expansionary requirements. FCFF is projected to turn positive inFY19 and is expected to increase from $0.34 million in FY19 to $3.50 million in FY25.

PARTICULARS ($ in M) FY19F FY20F FY21F FY22F FY23F FY24F FY25FCash in Hand 0.98 1.84 3.13 5.42 7.93 10.91 14.49

FCFF 0.34 0.86 1.17 2.17 2.47 2.91 3.50

Planned Capex 0.86 1.18 1.53 1.75 1.97 2.22 2.49

Non-Cash Working Capital (0.35) (0.46) (0.54) (0.66) (0.72) (0.81) (0.91)

Change in Non-Cash WC requirements 0.03 (0.10) (0.09) (0.12) (0.05) (0.09) (0.10)



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Tapinator, Inc. (TAPM) INITIATING COVERAGE (May 20, 2019) Coverage on... · 2019. 5. 31. · Crypto Trillionaire: iOS Snapshot Source: Company 0.0 Europe,Middle East,Africa, 28.7