GungHo, the $15 billion dollar gaming behemoth

Tokyo-based mobile game developer GungHo Entertainment has dominated mobile gaming press lately with its enormous and ever-increasing revenue announcements: in late March, Japanese gaming analyst Dr. Serkan Toto reported that GungHo’s largest title, Puzzle & Dragons, had generated between $62 – 86mm in February alone.

In April, the company’s market cap surged to $9 billion on the Osaka Stock Exchange, and it currently sits at more than $15 billion on news that Puzzle & Dragons generated approximately $113 million in April, or $3.76 million per day, according to Macquarie analyst David Gibson, who covers GungHo and tweets often in English.

The recent, precipitous rise in the company’s stock price was driven by the release of English-language and Android versions of Puzzle & Dragons as well as its announcement of 13 new titles in development.

GungHo released its most recent quarterly results on May 9th, and its performance was staggering:


Puzzle & Dragons, which has grown rapidly since the start of the year, is now generating more than 90% of GungHo’s total revenue, and the game has propelled GungHo’s market cap well beyond the scope of most other large, listed gaming companies operating in the mobile sphere. At $15 billion, GungHo is worth more than GREE, DeNA, and Zynga combined.

The chart below compares the indexed stock performance of GREE, DeNA, Zynga, EA, Glu, and GungHo from February 12th through May 10th. During this period, GungHo’s stock experienced a more than 5x increase, while the other firms experienced either inconsistently moderate increases or decreases:

This robust growth led to SoftBank’s recent tender offer for additional shares in GungHo from Asian Groove, a company led by Taizo Son, the younger brother of SoftBank’s president, Masayoshi Son. As a result of the transaction, SoftBank is now a majority owner of GungHo, having increased its ownership of the company from 33.6% to 58.5%.

The play is part of a broader strategy by SoftBank to become Japan’s largest vertically-integrated internet company, dovetailing with its current $20.1 billion bid to purchase Sprint, which has been beset by obstacles including a rival bid from Dish Networks. SoftBank recently told relevant parties that their participation in financing initiatives on behalf of Dish could preclude future cooperation with the Japanese telecommunications giant.

Like King, GungHo has achieved stunning recent success in mobile after more than a decade in business with a focus on online gaming. The company was started in 1998 as ONSale Inc., a joint venture between SoftBank and US-based onSale Inc. ONSale’s original business focus was the development of online auction systems; it changed its name to GungHo Online Entertainment in August 2002, shifting its objective to servicing massively multiplayer online RPGs in Japan. Its first such undertaking took the form of publishing Ragnorak Online in Japan (in a combined initiative to both host the game and localize it for Japanese audiences).

The company grew its publishing businesses throughout the 2000s, eventually moving into games development in 2004 and listing on the Osaka Stock Exchange in 2005. In 2008, GungHo acquired a majority stake in Gravity Co., Ltd, the South Korean developer behind the original Ragnorak Online title.

GungHo released Puzzle & Dragons in 2012, and the game experienced a huge spike in downloads in October when GungHo began airing television commercials for it in Japan. Puzzle & Dragons is now the top grossing game worldwide, driven primarily by its success in GungHo’s home market of Japan, where it has been downloaded by 10% of the population. The company has announced that it will not release any new smartphone games until Q3 2013 (Japan’s fiscal year begins on April 1st).