Snail, Inc. (NASDAQ: SNAL) is a leading global independent developer and publisher of interactive digital entertainment. The company has built a premier portfolio of premium games designed for use on a variety of platforms, including consoles, PCs, and mobile devices. Snail's flagship franchise, ARK, has been a top-25 selling game on the Steam platform by gross revenue in each year the company released an ARK DLC.

Business Overview

Snail's mission is to provide high-quality entertainment experiences to audiences around the world. The company's expertise in technology, in-game ecosystems, and monetization of online multiplayer games has enabled it to assemble a broad portfolio of intellectual property across multiple media formats and technology platforms.

The ARK franchise is a leader within the sandbox survival genre, with 91.7 million console and PC installs through March 31, 2024. For the three months ended March 31, 2024, ARK: Survival Evolved and ARK: Survival Ascended combined for an average total of 209,140 daily active users on the Steam and Epic platforms, compared to 276,144 in the three months ended March 31, 2023. The ARK franchise contributed 78.6% of Snail's net revenue for the three months ended March 31, 2024, and the company's five best-selling franchises (including ARK) accounted for 82.1% of its net revenue during the same period.

Snail's dedication to providing audiences with high-quality entertainment experiences utilizing the latest gaming technology has produced strong user engagement, continued revenue growth, and increased cash flows. Through March 31, 2024, the ARK franchise game has been played for 3.5 billion hours, with an average playing time per user of 163.7 hours and the top 21.0% of all players spending over 100 hours in the game, according to data from the Steam platform.

Financials

For the three months ended March 31, 2024, Snail's net revenue was $14.1 million, compared to $13.5 million in the three months ended March 31, 2023. The company had a net loss of $1.8 million for the three months ended March 31, 2024, compared to a net loss of $3.0 million in the three months ended March 31, 2023.

Snail's annual net income for the fiscal year ended December 31, 2023, was -$9,086,075, and its annual revenue was $60,902,098. The company's annual operating cash flow and free cash flow for the same period were both $465,868.

Expansion and Growth Initiatives

Snail is continuously evaluating and investing in its content strategy to improve and innovate its games and features, as well as to develop current technological platforms. The company is actively investing in expanding its gaming pipeline and developing media and eSports content related to its gaming intellectual property. Snail is also continuing to invest in growing its micro-influencer platform, NOIZ, by attracting new influencers and brand customers.

The company has experienced significant growth in its number of downloads over the last several years, selling 46.3 million units between January 1, 2016, and March 31, 2024. During the three months ended March 31, 2024, Snail sold 1.1 million units, compared to 1.7 million in the three months ended March 31, 2023. The company's video games provide highly engaging, differentiated entertainment experiences where the combination of challenge and progress drives player engagement, high average player times, and long-term franchise value.

Snail is also focused on innovation and technology leadership to maintain its competitive advantage. The company spends a portion of its capital on its research and development platform to continuously improve its technological offerings and gaming platform, including its proprietary video game technology, which includes a versatile game engine, development pipeline tools, advanced rendering technology, and advanced server and network operations.

Leveraging AI in Game Development

Snail is leveraging artificial intelligence (AI) across its development pipelines, with technologies such as Natasha, Luma AI, FDev, and the Society of Brands, which have immense potential to accelerate the company's creativity while maintaining premium quality. The goal is to make Snail an AI trailblazer that enhances its talented human teams rather than replacing them.

Snail is using AI to quickly iterate on the conceptualization phase of the pipeline, allowing the company to rapidly prototype different looks and visual effects for the game world. As AI continues to improve, Snail foresees being able to use AI to turn 2D concepts into 3D models and textures within the next 1.5 to 2 years. This will enable the company to reduce costs, ideate at a much faster pace, and deliver higher-quality products to the end consumer with a quicker development cycle.

Expansion of the ARK Universe

Snail is not only focused on expanding the ARK franchise within the gaming realm but also exploring opportunities to license the IP and create products in other entertainment and merchandising sectors. The company has previously operated with IP licensing models, creating products such as PixARK and ARK Park to expand the ARK universe and reach different audiences and age groups.

The recent launch of the ARK animated series on Paramount Plus has also opened up new avenues for Snail to grow the franchise's reach and exposure. The company plans to continue exploring opportunities to license the ARK IP for diverse genres of gaming, as well as other forms of entertainment and merchandising.

Diversification and Platform Expansion

In addition to the success of the ARK franchise, Snail has also been expanding its portfolio with new game releases. In the first quarter of 2024, the company's indie publishing label, Wandering Wizard, launched Zombie Within, the second entry in the social deduction genre developed by NewGen. The game is currently available in early access on Steam and is set for a 1.0 release in the fourth quarter of 2024.

Snail has also expanded the reach of its West Hunt title by launching it on the Nintendo Switch, offering cross-play capabilities and further broadening its player base. The company sees the Nintendo Switch as a promising platform for its social deduction games, as the short-session gameplay fits well with the console's portability.

Risks and Challenges

While Snail has experienced significant success with its ARK franchise, the company is heavily dependent on the future success of this IP. Failure to continue developing and selling new commercially successful "hit" titles or sequels to such "hit" titles could lead to a decrease in revenue and profits, and the company may incur losses.

Additionally, Snail relies on license agreements to publish certain games, including the ARK franchise. Failure to renew existing content licenses on favorable terms or obtain additional licenses could impair the company's ability to introduce new games, improvements, or enhancements, or to continue offering its current games, which could materially harm its business, results of operations, financial condition, and prospects.

The company also faces risks related to its reliance on third-party platforms, such as Xbox Live and Game Pass, PlayStation Network, Steam, Epic Games Store, the Apple App Store, the Google Play Store, and the Amazon Appstore, for the distribution of its games and the collection of revenues. Any changes or disruptions to these platforms could have a material adverse effect on Snail's business.

Liquidity

As of March 31, 2024, Snail had unrestricted cash and cash equivalents of $16.1 million. The company's current revolving loan has a balance of $3.0 million as of March 31, 2024 and is due for repayment on December 31, 2024. Additionally, Snail issued convertible notes with a principal balance of $1,080,000 in August 2023, which are due in May 2024.

The company is working to extend the maturity of its revolving loan and renew its short-term debt arrangement, but there is no guarantee that it will be able to do so on terms acceptable to Snail. The company's ability to comply with debt covenants or receive waivers for the covenants can lead to the acceleration of payments due under its debt facilities, cause the lender to cease making advances under the revolving agreement, or allow the lender to take possession of collateral.

Snail's current unrestricted cash position and expected revenue receipts are expected to allow the company to continue operations beyond the next 12 months and service its current debts. However, the company may need to raise additional capital, including through equity or debt financing, to fund its growth initiatives and address its short-term debt obligations.

Conclusion

Snail, Inc. is a leading global independent developer and publisher of interactive digital entertainment, with a strong focus on innovation and technology. The company's flagship ARK franchise has been a consistent top performer, contributing 78.6% of its net revenue for the three months ended March 31, 2024. Snail's dedication to providing high-quality entertainment experiences and its strategic investments in content, technology, and platform expansion position the company for continued growth.

The company's leveraging of AI in its game development process, as well as its efforts to expand the ARK universe beyond gaming, demonstrate Snail's commitment to staying at the forefront of the industry. While the company faces risks related to its dependence on the ARK franchise and its reliance on third-party platforms, its strong liquidity position and diversification efforts provide a solid foundation for future success.