Accompanying the sky-high valuations for technology, especially the networking Internet companies like LinkedIn (LNKD) and Facebook, games for mobile phones have rocketing valuations as well.
Angry Birds is a simple but very famous mobile game around the world. Rovio Entertainment Oy, the developer for the game, has taken eight years of tries to make this game work and get it out out. Rovio’s chief, Mikael Hed, 35, has confessed: “I used to worry this was a fad, but I don’t anymore.”
After that, the game has spread like bird flu and become so popular. Every month, around 50 million play the game. And some days, the players spend a combined 200 million minutes on their mobile devices. The game costs 99 cents ($4.99) on the IPad. This title has been downloaded over 300 million times across different platforms, and Peter Vesterbacka, chief marketing officer has said that the company thinks it can hit a billion downloads by the end of next year, and it can be the leading entertainment in China by 2012.
The company has gross at $20 million, and it’s profitable in the first three months of 2011. What Rovio has announced can be considered as getting along the bubble in social network businesses. Comparable deals have happened; in October, maker of Rolando and Topple sold to Japanese game developer DeNA for $400 million, 13 times revenue. And Playdom, the owner of Social City and Bola for Facebook games, sold to Disney (DIS) at nine times revenue. With similar multiples, Rovio should be valued at $700 to $1 billion. And with 300 million downloads, the value for each download stays at $3.3 on average.
However, with the valuation of $700 million to $1 billion, Rovio considered that was too low. They think the company is worth several billion dollars. Those sky-high valuations that the company put for itself seemed to be a false belief and overconfidence. It is very easy to switch to another casual game and definitely there would be many more games to be played in the future. Potential investors need to realize how fragile the business model is, and the asset Rovio has right now is the brand “Angry Birds”. Of course, short-term will still carry on the trends, but how long the trend would last will always be the question.
About the author:
Anh HoangMoney manager into global equities, especially with US and Vietnam markets. CFA level 3 candidate. Lecturer for Stalla - CFA course in Vietnam