Alistair Berg
What Is Snail?
Culver City, California-based Snail, Inc. (SNAL) was founded as a subsidiary of Suzhou Snail Digital Technology Co. to publish the parent firm’s games in the United States.
SNAL expanded to include independently-sourced content aimed at premium gamers, then began developing its own games through partner relationships and became an ostensibly independent entity in 2022 that is still controlled by the founder of the parent firm.
Management is headed by Chief Executive Officer Jim. S. Tsai, who has been with the firm off and on since 2014 and was previously CEO of SDE, a video game developer.
The company’s primary offerings include:
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ARK: Survival Evolved
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Age of Wushu
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NOIZ
As of June 30, 2022, Snail has booked fair market value investment of $12.9 million from investors including a variety of entities controlled by Hai Shi or his wife, Ying Zhou.
Snail’s Market & Competition
According to a 2022 market research report by Grand View Research, the global video game market was an estimated $196 billion in 2021 and is forecast to reach $583 billion by 2030.
This represents a forecast CAGR of 12.9% from 2022 to 2030.
The main drivers for this expected growth are continued technological innovation in hardware and software offerings, an increasing Internet penetration rate, and growing proliferation of smartphones.
Also, below is a historical and projected future growth rate for video games in the Asia Pacific region, which is expected to grow at a faster rate than the North America market:
Asia Pacific Video Game Market (Grand View Research)
Major competitive or other industry participants include:
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Activision Blizzard
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Electronic Arts
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Take-Two Interactive
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Ubisoft
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Epic Games
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Tencent
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Zynga
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Netmarble
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Sony
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Microsoft
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Nintendo
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Embracer Group
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Saber Group
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Enand Global 7
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FunCom
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Axolot Games
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Facepunch Studios
Snail’s IPO Date & Details
The initial public offering date, or IPO, for Snail has not yet been indicated by the company or its underwriters.
(Warning: Compared to stocks with more history, IPOs typically have less information for investors to review and analyze. For this reason, investors should use caution when thinking about investing in an IPO, or immediately post-IPO. Also, investors should keep in mind that many IPOs are heavily marketed, past company performance is not a guarantee of future results and potential risks may be understated.)
Snail intends to raise $30 million in gross proceeds from an IPO of its Class A common stock, offering 5 million shares at a proposed midpoint price of $6.00.
Class A common stockholders will be entitled to one vote per share and the Class B shareholder, founder Mr. Hai Shi, will be entitled to ten votes per share and will have voting control of the company post-IPO.
The S&P 500 Index no longer admits firms with multiple classes of stock into its index.
No existing shareholders have indicated an interest to purchase shares at the IPO price.
Assuming a successful IPO, the company’s enterprise value at IPO would approximate $280.4 million, excluding the effects of underwriter over-allotment options.
The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 10%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.
Management says it will use the net proceeds from the IPO as follows:
for general corporate purposes, which may include funding future products or technologies, maintaining liquidity and funding our working capital solutions. We may also use a portion of the net proceeds to acquire, in-license or make investments in businesses, products, offerings, and technologies, although we do not have agreements or commitments for any material acquisitions or investments at this time.
(Source – SEC)
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, the firm filed a DMCA takedown notice to Tencent, but has not received a response. The company is subject to a claim against it in relation to another DMCA takedown notice. Management has not characterized the potential outcomes of either process as to whether they would each be material to the firm’s financial condition or operations.
The listed bookrunners of the IPO are US Tiger Securities and EF Hutton.
How To Invest In The Company’s Stock: 7 Steps
Investors can buy shares of the stock in the same way they may buy stocks of other publicly traded companies, or as part of the pre-IPO allocation.
Note: This report is not a recommendation to purchase stock or any other security. For investors who are interested in pursuing a potential investment after the IPO is complete, the following steps for buying stocks will be helpful.
Step 1: Understand The Company’s Financial History
Although there is not much public financial information available about the company, investors can look at the company’s financial history on their form S-1 or F-1 SEC filing (Source).
Step 2: Assess The Company’s Financial Reports
The primary financial statements available for publicly-traded companies include the income statement, balance sheet, and statement of cash flows. These financial statements can help investors learn about a company’s cash capitalization structure, cash flow trends and financial position.
My summary of the firm’s recent financial results is below:
The company’s financials have generated reduced topline revenue, a drop in gross profit and gross margin, fluctuating operating profit and lowered cash flow from operations.
Free cash flow for the twelve months ended June 30, 2022, was negative ($499,253).
Advertising and Marketing expenses as a percentage of total revenue has fluctuated as revenue has dropped; its Advertising and Marketing efficiency multiple was negative (41.3x) in the most recent reporting period.
The firm currently plans to pay no dividends and to retain any future earnings for reinvestment back into the company’s growth initiatives.
The company’s Rule of 40 results have been negative in recent reporting periods, so have resulted in poor performance for this metric.
Step 3: Evaluate The Company’s Potential Compared To Your Investment Horizon
When investors evaluate potential stocks to buy, it’s important to consider their time horizon and risk tolerance before buying shares. For example, a swing-trader may be interested in short-term growth potential, whereas a long-term investor may prioritize strong financials ahead of short-term price movements.
Step 4: Select A Brokerage
Investors who do not already have a trading account will begin with the selection of a brokerage firm. The account types commonly used for trading stocks include a standard brokerage account or a retirement account like an IRA.
Investors who prefer advice for a fee can open a trading account with a full-service broker or an independent investment advisor and those who want to manage their portfolio for a reduced cost may choose a discount brokerage company.
Step 5: Choose An Investment Size And Strategy
Investors who have decided to buy shares of company stock should consider how many shares to purchase and what investment strategy to adopt for their new position. The investment strategy will guide an investors’ holding period and exit strategy.
Many investors choose to buy and hold stocks for lengthy periods. Examples of basic investing strategies include swing trading, short-term trading or investing over a long-term holding period.
For investors wishing to gain a pre-IPO allocation of shares at the IPO price, they would “indicate interest” with their broker in advance of the IPO. Indicating an interest is not a guarantee that the investor will receive an allocation of pre-IPO shares.
Step 6: Choose An Order Type
Investors have many choices for placing orders to purchase stocks, including market orders, limit orders and stop orders.
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Market order: This is the most common type of order made by retail traders. A market order executes a trade immediately at the best available transaction price.
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Limit order: When an investor places a buy limit order, they specify a maximum price to be paid for the shares.
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Stop order: A buy-stop order is an order to buy at a specified price, known as the stop price, which will be higher than the current market price. In the case of buy-stop, the stop price will be lower than the current market price.
Step 7: Submit The Trade
After investors have funded their account with cash, they may decide an investment size and order type, then submit the trade to place an order. If the trade is a market order, it will be filled immediately at the best available market price.
However, if investors submit a limit order or stop order, the investor may have to wait until the stock reaches their target price or stop-loss price for the trade to be completed.
The Bottom Line
SNAL is seeking U.S. public capital market funding to invest in its general, unspecified corporate expansion plans.
The market opportunity for video games is quite large and expected to continue relatively strong growth through 2030, so the firm operates in a growing industry.
However, it faces significant competition from major game developers with deep pockets and changing landscape for marketing games to users as a result of changes in mobile platform advertising identification.
US Tiger Securities is the lead underwriter and there is no data on the firm’s IPO involvement over the last 12-month period.
The primary risk to the company’s outlook as a public company is the concentration of 90% of its revenue coming from its one “ARK” title.
As for valuation, management is asking investors to pay an Enterprise Value/Revenue multiple of around 3.1x for a company that has produced sharply contracting revenue in recent periods.
While the low nominal price of the IPO may attract day traders seeking volatility, given the firm’s contracting topline revenue and its revenue concentration on one title, my outlook on the IPO is on Hold.
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