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How Much Are Angry Birds Worth?

August 18, 2011 | About:
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 Hoang
Money manager into global equities, especially with US and Vietnam markets. CFA level 3 candidate. Lecturer for Stalla - CFA course in Vietnam

Visit Anh Hoang's Website


Rating: 4.1/5 (22 votes)

Comments

adamcz
Adamcz - 3 years ago
They have no moat. No special programming expertise, no important patents, just a single casual game with no plot.

Then again, this is the era where Zynga is allegedly more valuable than Electronic Arts and Take Two combined.
Sivaram
Sivaram - 3 years ago
The problem with stocks like these is that the bear case cannot be made with a high degree of confidence. Although some of these companies appear to have no moats, since this is the very early stage of an industry (say mobile phone gaming), these companies, for all we know, may end up being giants in the field in the future. But they could also crash & burn easily. It's just too hard to say.

It's kind of like Netflix a few years ago. Many were very skeptical of its business model, or at least its ability to shift its mail order model to the online world. I didn't have a strong opinion but even I wondered how Netflix, which was a medium-sized company with limited resources, could ever compete against online movie downloads from Amazon, Wal-mart, etc, as well as the on-demand offerings from cable and satellite providers. Well, I, along with everyone else, was wrong big time.
tonyg34
Tonyg34 - 3 years ago
will these online game providers be the next Nintendo or the next CalecoVision? No idea.

I do think that the business model is a permanent disruption to hardware providers and that all developers will have to pursue online and cross platform distribution models if they wish to remain in the game.

Will people continue to pay $300 for a new hardware system just to play Mario? Do people under twenty still know who he is? I have PC Mod's for all my favorite titles new and old, though admittedly some of them are cracks and not legit licensed products, but they still play the same. PlayStation and XBox's games on disc format made it especially easy to rip them and share online. You have to actually want to steal from Nintendo to get their games since there's some extra steps involved, but its still just code waiting to be read.
Sivaram
Sivaram - 3 years ago


TONYG34: "I do think that the business model is a permanent disruption to hardware providers and that all developers will have to pursue online and cross platform distribution models if they wish to remain in the game."

Although some of these companies may disrupt and eliminate the hardware consoles, I think that's still years or decades away (due to issues with Internet speed, weak controls on touch-screen tablets and mobile phones, etc).

Instead, I think these mobile phone and online gaming companies are creating a new market and capturing new users. In particular, Rovio, with its Angry Birds, has tapped the casual gamer market. People who traditionally didn't play games--business users with little time, women, older people, those without much dedication to games, etc--are really the core growth area for these games. That's why I believe investors are bullish on companies like these.
manxman
Manxman - 3 years ago
There are too many stocks in the world to be bothered wasting time with something totally unpredictable like this. Take a pass and move on to the next idea.

jhodges72
Jhodges72 - 3 years ago
Manxman, I completely agree. It always amazes me how some investors will write articles praising the teachings of Warren Buffett but failing to heed his advice when it especially comes to software companies. As Munger said, I would give a failing grade to anyone who tried to value a company such as this.
ken_hoang
Ken_hoang - 3 years ago
Agree that Angry bird has tapped into the casual game market where especially the office people can play it during the free time. It's the game of killing time though. However, with those funny valuations, it is ridiculous and it proves to us once again that the Rovio is extremely bullish about its own game. I do not think that would last for long. That's showing how irrational the market is.
tonyg34
Tonyg34 - 3 years ago
@Siviram

its not decades away, it is very much right now. A really fine iPad game offers an experience in which many of the impurities of console gaming are boiled away. I would say that the best of them provide as much, if not more, consistent engagement than their console brethren.

Grab an iPad and try your hand at redesigns of console games like GTA: Chinatown Wars or the even better Mirror's Edge for iPad. These are not casual games, they are full story console games that address the "Movement Problem" in a variety of creative and engaging ways.

angry birds is puzzler game and its flash popularity falls into a well defined trend line that includes games like World of Goo (best game ever, even more fun on touchscreen), and Tetris. They are always incorrectly conceived as casual games for just killing time, but puzzlers and their intellectual cousins Sims games, are emotionally engaging because they deal with managing space (or time). Anyone who maintains that video games make you dumber could stand to play a couple of good puzzlers. Whether the form of intelligence exercised and strengthened by puzzlers has any practical application outside of playing puzzlers is another question.

The economic viability of the long narrative video game production cycle, the expensive development process by which games like Uncharted are developed, is in all likelihood doomed. To make the kinds of games we're talking about, you need several dozen people — probably more like a hundred — with training across several fields. If the money's not there, which is increasingly the case, the games can't be made. Example, the so-called success of LA Noire which failed to even come close to projected sales estimates. So developers will bet big on franchises and then try to get lucky with the occasional indie game, like the Hollywood studio system.

I stand by my thesis, but admit that it is inactionable from an investment stand point. Just b/c hardware developers are in a state of structural decline doesn't even come close to justifying the price of Rovio or Zynga. Game developers are content creators and will likely be acquired by the likes of Disney, who will cross promote movies, tv shows, games, music, phone apps et al from the earliest stages of development. Otherwise the game development business is a lottery ticket like blockbuster Hollywood movies. There's a Cutthroat Island for every Clerk's.

Short answer: its a terrible business to invest in unless you want to short a developer whose major revenue source has no franchise value, which is currently true of several developers.

tonyg34
Tonyg34 - 3 years ago
@ Manxman and Jhodges72

Circle of competence. Buy what you know. Pretty sure Buffett said something about that.

I happen to love gaming and so it is a pleasure for me to do the necessary due diligence to stay abreast of market developments and find worthy investment opportunities. I have no real intention of investing in any of these gaming companies and yet I still invest hours reading about the businesses.

The only real advantage one investor has over another is information arbitrage. I just happen to know a lot about something that is monumentally useless. I also happen to think gaming has wide appeal and offers consumers the most entertainment hours for the cost, so eventually there might be some opportunity to apply my knowledge base. If not, everyone needs a hobby.
jhodges72
Jhodges72 - 3 years ago
Tony,

Buffett's statement to work within your circle of competence does not cancel out the fact that he also stated to not invest in companies unless they're highly predictable businesses that one can know with a high degree of certainty whether they'll still be operational 10 years out. He then went on to say if anyone could predict the computer/software industry 10 years out - he'd give them a failing grade. It's a human condition to read one part of a lesson and ignore the other. Many do it. The ones that don't do it are the ones making all the money and there are very few of us around who consistently do.

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