Independent game developer iCandy Interactive (ASX: ICI) has attempted to win over the hearts of investors with its latest half-year results, revealing a record revenue increase of 1600%, hoping investors don’t realise it was entirely acquired at the expense of shareholders. 

For the half-year report that ended 30 June 2022, iCandy raked in $15.9 million in revenue, representing a 17x increase from $0.9 million in 1H21. The Company also stated it achieved profitability with EBITDA coming in at $4.4 million, gaining 82% from -$580k in 1H21. 

This hasn’t been enough to mask their $1.9 million net loss after tax though, ballooning out from last year’s $1.0 million loss for the previous corresponding half year. 

Throughout the previous six months, iCandy completed a series of acquisitions, most notably, Lemon Sky Studios. It started with the investment of Game Studio Storms in February 2022, where it acquired the Studio for $8 million, netting them a 51% stake, which may increase by a further 16% in the future. 

Less than a month later, iCandy secured another acquisition of Gameconomy, where it bought up 60% of the Company for $497k. Both these acquisitions were to bolster its efforts to produce games for the Metaverse and Web 3.0 initiatives, and also to bring Korean games to the Southeast Asian Market, where both Companies have a solid foothold. 

To gain access to the European market, iCandy also completed an acquisition of Flying Sheep in June 2022 for $3 million to lock in 60% of the Studio. 

As mentioned above, the most notable acquisition this year has been a 100% stake in Lemon Sky Studios for a total cash consideration of $44.5 million, paid in sizable tranches of $17.8 million. Lemon Sky is best known for developing AAA games, including; Call of Duty Infinite Warfare, Need for Speed Hot Pursuit, Spider-Man and the Marvels Avengers. Together, the companies planned to develop 3 NFT Generative Art projects and 9 NFT/Metaverse gaming projects. With the companies combined, the total workforce now eclipses 450 full-time workers, with plans to be increased by 20% over the next year.  

iCandy also engaged with Froyo Games in March 2022 to develop multiple Metaverse Games and an NFT series. The maiden NFT Project – known as ‘The League of Super Misfits’ was the first IP and concept art developed by the Company where it is expected to fetch a minimum $4 million in revenue when it was finalised for distribution before the end of December 2022. Being completed so recently, no revenue has been captured from the sold NFTs, and wasn’t included in the half-year announcement. 

Revenue is mainly attributed to work-for-hire that was undertaken by Lemon Sky Studios that is receiving continuous strong demand for its game development services from major global AAA game studios. Currently, its pipeline is filled with demands that will keep them busy for the next 3 years, which is why there are plans for an increase in workforce headcount.

Beyond game development, Lemon Sky Studios is exploring alternative revenue streams, in particular providing animation development services to global TV and movie streaming providers. 

iCandy management have made it very clear that revenue this half-year is not a one-off, where it is expected to continue on its current growth trajectory. With no games released in the previous 6 months, it is clear that the iCandy’s revenue growth has been entirely acquired rather than organic while it hopes to realise some of its own revenue from NFT sales soon.

The true cost of acquiring that 1600% revenue gain of a small base can be seen in the portfolio if iCandy shareholders who have watched ICI shares fall from $0.18 per share in February 2022 to now be trading around $0.08 to reflect shareholder dilution that has funded the acquisitions. 

Given that payment to the vendors of Lemon Sky Studios was shares held under escrow for 12 and 24 months, keep one eye open around 11 February 2023 and 11 February 2024.