Vintage is in.

 Clothing shops continue to do a brisk business selling used clothing. Consumers are buying updated models of old video game systems like Nintendo. There seems to be a “yearning” for simpler forms of entertainment in our digital age. With the advent of Millennials as a major consumer-spending demographic this trend has accelerated. The less our smartphones are needed, the better.

 This confluence of factors has led to a revival of one other form of entertainment we haven’t talked about: mechanical pinball machines. That’s right, good old fashioned, mechanical magic lit up in neon. Whether you are a collector, casual pinball enthusiast, or just looking for a new addition to your home entertainment, pinball machines are “in.”

 And there’s one company that’s taking the lead and making it all possible.

 The “Game-Changers”

The pinball machines business faced a depression, of sorts, in the 1990s. Electronic arcade games were in and kids wanted a PlayStation in their living room: not a pinball machine. Between arcades and American householders, there was just no place for a pinball machine in 1990s America.

 Around the year 2006, less than 10% of the pinball machines were destined for single-family homes. What machines were being produced and sold were destined for traditional arcades, restaurants, bowling alleys, etc.

 That is when Nic Parks, Chief Executive Officer of The Pinball Company, realized the potential of the pinball market. Call him crazy, but it was then he realized that nobody was really selling pinball machines online. By applying his business savvy, knowledge of the game room business, and web development experience, Nic Parks founded The Pinball Company in the hopes of reviving this age-old form of entertainment.

 Managed by Nic Parks and his wife Brook, The Pinball Company became an industry leader in selling new and used pinball machines. It also added arcade games, air hockey, foosball, jukeboxes and more.

 His creation has not only made it possible to acquire a flawless pinball machine easily online – it also helped re-launch the current craze:

“Sites like Gameroom Champ and The Pinball Company offer an impressive arsenal of arcade-ready, modern-era pinball machines—new and used—ranging from $2, 500 to $10,000.”

-John Elliot – Mansion Global Contributor

Thanks to the efforts of people like Parks, the in-home pinball market has been coming back with gusto. The commercial market is also rebounding as people yearn for nostalgic forms of entertainment.

Barcades — bars that feature both arcade and pinball games — are opening everywhere these days. This has had the added effect of feeding into the imaginations of customers – they are beginning to realize that they, too, can own a pinball machine in their home.

The Pinball Company has taken advantage of this by offering both refurbished and new pinball machines – at increasingly robust prices.

Founder Nic Parks says, “Our customers love us because of our easy to navigate website, cream of the crop machines, and quality customer service that makes you feel like part of the family.”

1. Focus on the Customer

Undoubtedly, customers are prime importance for The PinBall Company, which is reflected in every area and aspect of their business. Taking time to experience the business for yourself will leave you feeling more a part of a family then a business.

In a market that could be commoditized, this team has made sure to make service a key component of the business, which reduces the pressure to reduce price to compete.

The company not only believes in selling high-quality machines but they also believe strongly in servicing the machine long after a sale has been made.

They have an extensive network of 300+ technicians worldwide that do in-home service calls and claim to get customers technician visits/assistance within 24 hours of issue being raised, in majority of the cases. This also helps to drive the healthy bottom line of the business.

The Pinball Company is well connected within the pinball community and have relationships with some of the best pinball restorers in the country. Making them an ideal go-to even if you want a machine of your own restored.

2. Impeccable Growth Record

Despite competition in a niche market like this, The PinBall Company has managed to book revenues of $7.3 million in 2017. This represents a growth rate of 50% year-over-year. Clearly, The Pinball company is gaining a strong foothold in the market.

3. Loyal Following

Undoubtedly, quality customer service is a must these days. In our digital and social media-driven age, the company has massive Facebook following with nearly 270,000+ loyal fans. The Pinball Company also claims to have largest selection of modern pinball machines in the country.  

This team also see’s 1,000 visitors to their site per day, or 365K of their 1 million+ annual visitors come from Google organic search, which is a cost effective and efficient way to grow the B2C portion of the business.

4. Market Expansion

The Pinball Company aims to expand their locations to be within a days’ drive of 80% of our customers. This will allow them to service the commercial market that’s been going strong and the emerging market of everyday consumers who want something unique for their home entertainment.

By being close to the customers, they will be able to take care of everything personally, from sales and delivery, to setup and maintenance. This will give customers the best experience without needing to outsource, which could hinder the quality of service customers experience.

They are finding a way to create a consistent, quality market leading position in this unique market across the US.

We will be the first to say this is not a traditional company we rate as a strong investment. It is neither a tech play nor a new innovation. Rather, it is a company that has proven an ability to be profitable with $500K+ in net income in 2018 attributed to $7M+ in sales.  

Source: The Pinball Machine Financials

The fact that the team is currently valuing the company at $8M means the valuation is 1X on revenues and 16X on net income, which is fair market value. At a 50% growth rate YoY, the team could likely afford to boost the valuation.

However, in this niche market, we think the team is wise to position the company at a valuation that still bears meaningful upside for investors.

Though we do not expect this to be a 10 or 100X type investment, we do think that it is a de-risked investment with minimized downside due to the 12 year run of the business, the company’s proven growth record, and the surprising tailwind growth of pinball machine demand in the American home and bar!

We also recognize that the Pinball Machine may not be a huge market, which is a negative characteristic of the investment, but management’s ability to execute has impressed enough to still feel there is opportunity to win a large market share within this smaller than desired market.

For these reasons, we think the Pinball Company is a Deal to Watch and could help investors to diversify out of the tech market. We think there will be opportunities to either to sell to larger gaming entities like an Atari down the road or to broader gaming distributors.

Wirth a 6% convertible note, in a scenario where this couple-run business does not decide to sell in the next 5 to 7 years, investors would still see a 6% return, which we expect will be payable due to the health of the business fundamentals.

 Invest in this business with the lens of investing in a growth equity round with smaller returns, but less risk. Be sure to invest HERE if interested.