Can mobile gaming companies go public again?

On September 29th, Rovio Entertainment, the company behind Angry Birds, listed its stock on the Nasdaq Nordic exchange. The company’s public offering had been halted prior to trading due to oversubscription; the company’s stock was priced at €11.50 for debut (the very high end of its suggested range) and opened at €12, giving it an enterprise value of more than $1BN.

Rovio had all but been given up for dead as recently as 2015; a round of layoffs, a management shuffle, a hit movie, and a trajectory shift on Angry Birds 2, the company’s highest grossing mobile game, changed its fortunes in just two years to the point that it could IPO (albeit, on a relatively small exchange) with a valuation of more than $1BN. Such a dramatic turnaround is a testament to how quickly prevailing wisdom about the fate of a company in the mobile space can become stale.

The prevailing wisdom around mobile gaming companies going public at one point felt irrefutable. A debate simmered in the summer of 2013 — as Zynga’s stock price stood at about 1/3rd of where it debuted and just a few months before Candy Crush developer King’s IPO — over whether VC financing was a good fit for mobile gaming companies. The accepted truth at that time was that the public markets were structurally hostile to mobile gaming companies, rejecting them like transplanted organs, because mobile gaming was a hit driven business. If mobile gaming companies couldn’t go public, their paths to billion dollar exits were limited, and so the general sentiment from some was that they weren’t suited for VC investment.

Only a few months after listing, King’s stock price had been cut in half, ostensibly validating the mobile-games-can’t-go-public thesis. In early November 2015, Activision acquired King for $5.9BN, or about $18 per share, which was a 20% premium over its share price at the time but a far cry from its debut price of $22.50. And in February 2017, South Korea’s Netmarble acquired some of Kabam’s assets for between $700 and $800MM, unequivocally extinguishing speculation that the company would go public.

But the prevailing wisdom of the Zynga-King IPO era now seems outdated. Rovio, which languished for years, is a public company with a more than $1BN enterprise value. Kabam’s acquirer, Netmarble, raised $2.3BN in South Korea’s second-largest ever IPO this past summer at a valuation of more than $12BN. In its last earnings report, Tencent — which operates Honour of Kings, the world’s top grossing mobile game, and owns a majority stake in Supercell — posted quarterly profits of $2.7BN (a 70% year-over-year increase) as its mobile gaming revenues surpassed PC gaming revenues for the first time. Next Games, the Finnish developer behind The Walking Dead: No Man’s Land, listed its stock on the Nasdaq First North Finland exchange in March 2017 and has seen its stock price increase from less than €8 to over €12 since then:

Even perennially-troubled Zynga is finding common cause with public markets investors, having seen its stock price rise from under $3 one year ago to over $3.50 today. In March, Zynga appointed former EA executive Frank Gibeau as CEO; Gibeau, in turn, introduced a number of former EA executives to the Zynga management team and began focusing the company’s attention on live operations and growing the revenues of its existing properties rather than taking big bets on costly new launches.

Glu Mobile, the developer behind the Kim Kardashian mobile game, has also experienced an upswing in its stock price over the past year on the back of the success of its hit game, Design Home. In late September, Jon Jordan published a masterfully articulated analysis of both companies’ recent public markets prosperity in Race To $4: Zynga Vs. Glu Mobile.

Why has this happened — how did the public markets transform from a barren and inhospitable no-man’s land for mobile gaming companies into the Garden of Eden? I believe there are a few reasons that public marketers investors have warmed to mobile gaming companies over the past few years relative to their reticence in the period of the Zynga and King IPOs:

  • Mobile gaming companies have figured out sustainable user acquisition. Mobile gaming companies can now demonstrably grow their user bases without the need for the kind of unsustainable virality (Candy Crush Saga) or platform preferential treatment (FarmVille) that defined the biggest hits in the “first wave” of Western free-to-play social games;
  • Mobile gaming companies have figured out monetization. Companies like MZ, Supercell, Rovio, Platrix, Peak Games, and bigger public companies like EA and Zynga have discovered and perfected monetization mechanics that aren’t seen as abrasive and absusive by players;
  • Mobile gaming companies have figured out brand utility. Mobile gaming companies like King with Candy Crush but even Playrix with the Gardenscapes / Homescapes universe, Peak Games with the Toy Blast / Toon Blast brand consistency, Niantic with the Pokemon Go IP license, etc. have found ways to integrate brands into their games that actually serve all three of monetization, retention, and acquisition;
  • Mobile gaming companies have figured out how to make money from advertising. Companies like Gram Games, Voodoo Games, Miniclip, and Ketchapp are generating impressive levels of revenue through in-game ads that don’t detract or distract players from game content. The ascendance of the “hyper casual” segment is one of the most exciting developments in mobile gaming at the moment;
  • Mobile gaming companies have figured out live ops and are building eSports. Live operations management and eSports — which are two fundamentally different things but represent two sides of the same coin via generating increased levels of monetization and engagement through competition / cooperation — have allowed mobile games developers to keep players engaged and intellectually invested in play for far longer than was achievable with most games of the 2012-2014 era.

These developments and points of maturation have seemingly changed the receptiveness of public markets to mobile gaming companies. The levels of antipathy toward mobile gaming companies that were present from 2012 until just recently — which were probably deserved — appear to have dissipated, at least momentarily, on the back of real, important, and convincing changes in the way mobile games are marketed, monetized, and operated.

Photo by Chris Li on Unsplash.