As regulators scrutinize Gree Inc. and other social game operators in Japan, investors should take heed that fresh, rapid success always brings uncertainty with it.
Japan's Consumer Affairs Agency said Monday that investigators are probing the social gaming feature "compu-gacha," in which users who spend their money on a virtual vending machine have the chance to win prizes, according to press reports. Gree and another large social game company in Japan, DeNA Co., reportedly said Wednesday that they would stop offering the gambling-like feature.
Investors scrambled after the regulator raised its questions. Gree's stock has shed 30.68% of its value since last Wednesday to close today at 1491 yen per share.
Gree is the kind of company to attract fair weather friends. Founder and CEO Yoshikazu Tanaka, a shaggy-haired 35-year old who wears a sweatshirt in his company photo, has pulled off numbers that would turn many black suits green with envy. Forbes Magazine glorified him in 2010 as the world's second-youngest self-made billionaire after Facebook's Mark Zuckerberg. His company's sales exploded by 82% to 64.2 billion yen in the year ended June 30, 2011 — and then generated nearly 72 billion more yen during the next six months alone.
Tanaka's ambitions haven't stopped yet. As he pushes to expand his business globally, he's been on a rampant shopping spree. On January 21, 2011 Gree announced plans to start an advertisement network business by acquiring 77.1% of the voting rights in a Tokyo company for 1.6 billion yen, according to Reuters. A few months later on April 21, Gree announced its acquisition of the Burlingame, Calif.-based mobile social gaming network OpenFeint for more than $104 million. Then on November 2, Gree said it planned to acquire shares in MARS ltd. until the Tokyo smartphone app developer became a wholly-owned subsidiary. And only days ago on May 1, Gree said it agreed to buy the U.S. mobile game developer Funzio Inc. for around $210 million.
In part due to such acquisitions, Gree's financial statements reflect a very aggressive AGR, which is calculated using GMI's mathematical model of corporate governance risk. Gree's AGR score has been under 10 since September 2011, indicating a high amount of accounting and governance risk. In contrast, Gree's statements had reflected an AGR of 76 in June 2010, indicating that the company had more risk than only 24% of comparable companies at the time. Meanwhile, the company's stock price is down roughly 6% from its peak of 1588 yen per share in June 2010, and plunged roughly 77% so far from a peak of 2652 yen per share this year.
The low AGR score doesn't mean Tanaka is necessarily doing anything wrong. But it does show that he's willing to take on significant risk to grow his company at the fever pace his investors have come to expect. And as investors who lost money this week can attest, you never know what can happen.
Region: Japan
Industry: Technology
Sector: IT Services / Consulting
Market Cap: JPY 500,881.9mm (Large Cap)
ESG Rating: C
AGR: Very Aggressive (9)
Japan's Consumer Affairs Agency said Monday that investigators are probing the social gaming feature "compu-gacha," in which users who spend their money on a virtual vending machine have the chance to win prizes, according to press reports. Gree and another large social game company in Japan, DeNA Co., reportedly said Wednesday that they would stop offering the gambling-like feature.
Investors scrambled after the regulator raised its questions. Gree's stock has shed 30.68% of its value since last Wednesday to close today at 1491 yen per share.
Gree is the kind of company to attract fair weather friends. Founder and CEO Yoshikazu Tanaka, a shaggy-haired 35-year old who wears a sweatshirt in his company photo, has pulled off numbers that would turn many black suits green with envy. Forbes Magazine glorified him in 2010 as the world's second-youngest self-made billionaire after Facebook's Mark Zuckerberg. His company's sales exploded by 82% to 64.2 billion yen in the year ended June 30, 2011 — and then generated nearly 72 billion more yen during the next six months alone.
Tanaka's ambitions haven't stopped yet. As he pushes to expand his business globally, he's been on a rampant shopping spree. On January 21, 2011 Gree announced plans to start an advertisement network business by acquiring 77.1% of the voting rights in a Tokyo company for 1.6 billion yen, according to Reuters. A few months later on April 21, Gree announced its acquisition of the Burlingame, Calif.-based mobile social gaming network OpenFeint for more than $104 million. Then on November 2, Gree said it planned to acquire shares in MARS ltd. until the Tokyo smartphone app developer became a wholly-owned subsidiary. And only days ago on May 1, Gree said it agreed to buy the U.S. mobile game developer Funzio Inc. for around $210 million.
In part due to such acquisitions, Gree's financial statements reflect a very aggressive AGR, which is calculated using GMI's mathematical model of corporate governance risk. Gree's AGR score has been under 10 since September 2011, indicating a high amount of accounting and governance risk. In contrast, Gree's statements had reflected an AGR of 76 in June 2010, indicating that the company had more risk than only 24% of comparable companies at the time. Meanwhile, the company's stock price is down roughly 6% from its peak of 1588 yen per share in June 2010, and plunged roughly 77% so far from a peak of 2652 yen per share this year.
The low AGR score doesn't mean Tanaka is necessarily doing anything wrong. But it does show that he's willing to take on significant risk to grow his company at the fever pace his investors have come to expect. And as investors who lost money this week can attest, you never know what can happen.
Region: Japan
Industry: Technology
Sector: IT Services / Consulting
Market Cap: JPY 500,881.9mm (Large Cap)
ESG Rating: C
AGR: Very Aggressive (9)
