Archive | February, 2012

#G5 Entertainment: History repeats itself – part 2

28 Feb

G5 Entertainment’s share price movement in recent weeks offered somewhat of a deja vu for investors as it resembled last years performance. This raises the question if the remainder of the year will be similar to last year as well, i.e. a sideward movement.

We believe there are several reasons to believe why 2012 will be different from 2011, with one of the most important ones being the overall sentiment on the stock market. As shown in the second graph, last year was not a good year for the stock market in general and the broader Swedish OMX30 index lost 15% during 2011. At worst, the OMX30 was down 27% (September 2011 versus January 2011). Despite the general risk aversion, the G5 share managed to hold on to its gains from the beginning of the year and finished 2011 with a gain of 91%.

Furthermore, G5 has continued to improve as a company since last year which should not be neglected. They managed to get a stable new shareholder with Swedish investment company Traction, established their presence on new platforms such as Android and have invested heavily in the development of new games. They continue to build a credible track record and this will show in the share price sooner or later.  A multiple expansion should be the logical consequence. Current levels of 12x forward looking EPS estimates are more in-line with a typical pulp & paper company that does hardly have any growth at all.

Nordic Investor

G5 Entertainment: CEO comments on Q4 numbers

26 Feb

It was another good set of results that G5 Entertainment reported on Friday and most importantly, the comments around the start of 2012 were positive and the 2012 target of an EPS of SEK 3.20 was reiterated. Also, CEO Vlad Suglobov states in the report that he wants to be more conservative in the future with his guidance and at the same time he is sticking to the 3.20. I guess this means that the SEK 3.20 should be considered to be conservative.

Nordic Investor got hold of CEO Suglobov for a few follow-up comments on the report:

Nordic Investor: Can you talk a bit about your investment activities and how this affected the Q4 result?

CEO Suglobov: If you are referring to cash flow, then this is according to the plan we were trying to communicate for a while now. We did not raise money from Traction just to dilute shareholders. We raised the money in order to invest the money, and investing money means spending money on licensing and developing new games. Hence negative cash flow and increased development costs on the balance sheet. We raised money in Q3, and invested actively in Q4, so it’s all natural. In 2012 we will see the results of this investment — the increased number of game releases. The management is watching the cash flow and our cash in bank in order to maintain sufficient safety cushion. We are in control of our cash flow. We can turn the company into cash flow positive very fast by slowing down the growth of investment in new products. However, our goal right now is to reinvest and ramp up the production for the sake of future growth. The market is growing fast and we need to grow fast to keep up with the competition and seize market share.

NI: Your tax rate was rather high at 26.9% during Q4. You mention in the report that it is due to the international structure with different tax rates. What has changed in your structure that makes this a bigger issue than in the past? What is a reasonable tax rate to calculate with going forward?

CEO: Taxes are paid based on a company’s annual results. It is not accurate to measure tax in a single quarter — this is only an approximation. One needs to look at the whole period January-December. If you look at it, you will see that our effective tax rate was circa 21%. The change from 2010 to 2011 was that we moved our development studio holding companies to Malta in order to optimize group structure and keep our development and publishing holding entities within EU. This was communicated in the company reports well in advance. The tax rate is rather high because Swedish corporate tax rate is rather high. It is impossible to say precisely what is the tax rate we will see in 2012, but you can look at 2011 as a reference point. Also, we do not consider having to pay taxes an issue — it is what any responsible business has to do.

NI: The decrease in operating receivables in Q4 was large at SEK -3708m. What happened there?

CEO: Accounts receivable can move up and down — this is normal in the course of business, and depends on when our distribution partners remit their payments to G5. Our revenue comes from large companies like Apple, Google, and Amazon. Their payments come within certain period of time after the end of the reporting period. Sometimes their payments arrive earlier than at other times. Comparing two such situations you will see a difference in Accounts Receivable, which can be comparable to the group’s monthly revenue.

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Finally, for everybody still wondering about the legitimacy of G5 Entertainment’s approach to capitalize its development costs and how this is boosting earnings short-term we highly recommend to read our interview with CEO Suglobov from November 18th, 2011 (http://nordicinvestor.net/2011/11/18/g5-entertainment-ceo-comments-2/).

It is quite obvious that a company should be judged and valued by its future potential rather than its most recent quarter. Naturally, a company that has sales of SEK 46m needs to invest in its growth. In fact, that is what its owners expect from it. So judging a company by yesterday’s cash-flow maybe makes sense for an established and mature business but certainly not for a growth company. Rather, investors have to look at the market the company is active in and how it manages to grow its sales, i.e. how the company is holding up in the market place. Needless to say, G5 Entertainment is doing exceptionally well in a very fast growing market. Their games are assets, which is why they belong on the balance sheet. Would 2011 earnings have been lower if G5 treated its development costs as expenses? Absolutely! But these developments costs create long-term value for G5 and its shareholders. As long as they lead to revenue growth in the future, this is absolutely desirable.  G5′s track record speaks for itself and Supermarket Mania, the company’s first game released for the iPhone in 2009 is still generating revenue despite the fact that is completely depreciated since almost one year ago.

So what does this mean for a valuation approach of G5 Entertainment? Actually, the issue that critics most often cite might pretty much have the complete opposite implication for a fair valuation. People arguing for 2011 and also 2012 earnings to be “too high” (as in “boosted by activated development costs”), forget in our opinion that the revenue line is what it is, i.e. is not “artificially high”. Furthermore, a boosted earnings line in 2012 implies even further revenue growth in 2013, since all the development costs of 2012 will lead to new games in 2013. The question is rather when a “steady state” is reached and what that will look like. In a steady state, G5 will invest more or less in-line with depreciation which makes earnings “clean” which leads to “clean” cash-flow as well. This has to be a clear target and needs to be followed closely by shareholders. Ultimately, shareholders will want to be rewarded with dividends and those can only be paid with cash. However, such a steady state is hopefully many years in the future as the smartphone and tablet markets have much much more growth to give and G5 has much much more growth potential by entering new platforms, new genres, simply publishing more games etc. So a fair valuation approach is most likely not the one we use most often, i.e. looking at 12-months forward EPS and applying a PE-ratio on that number. A fair valuation approach would be to judge how such a steady state will look like for G5. I am willing to bet that it is much much higher than 2012 levels and that a fair valuation for G5 is much much higher than the current enterprise value of around SEK 335m.

Good luck everyone!

Nordic Investor

“No bubble bursting for Social Gaming”

25 Feb

Interesting article featured at Forbes.com citing video game analyst Michael Pachter saying that he sees no signs of a bubble bursting for Social Gaming in general and Zynga in particular. Analyst consensus estimates for Zynga 2012 EPS is USD 0.26 and the Zynga share closed at USD 12.93 yesterday. That implies a 12-months forward looking PE-ratio of 50x. Nordic Investor wonders: if US industry experts consider a PE-ratio of 50x for Zynga not to be a bubble valuation, what would they think about G5 Entertainment, which is currently trading at a 12-months forward PE-ratio of below 14x? If G5 Entertainment was listed in the US, people would be all over it.

Here is the Forbes.com article:

“At the fourth annual Ayzenberg A-List Summit 2012 in San Francisco, Wedbush Morgan Securities video game analyst Michael Pachter delivered an engaging keynote that focused on social gaming. Pachter was bullish on Zynga and believes the social games giant will continue to grow as Facebook broadens its reach to new consumers in the U.S. and around the globe.  Pachter agreed with Zynga founder Mark Pincus’s statement that social games like FarmVille and Words with Friends bring people together. He talked about older relatives who never played a game before sending him invites through Zynga games.

 “The game industry has never had as many people playing its products,” said Pachter. “And those people are playing more hours than ever before.” 

With more parents playing games, there are fewer obstacles to kids growing up with gaming. The stigma of games being violent and dangerous is fading away because social games are being played by such a wide range of players, including many new to the hobby.

“Social games are getting better,” said Pachter. “The opportunity is so large for developers because people want to work on these games. Look at what Zynga has been doing with CastleVille and Hidden Chronicles and they’re executed better. I’m not sure Zynga is going to grow in lockstep with Facebook numbers, but I think we’ll see them grow in both the U.S. and Europe. I think we’ll see Zynga grow to 200 million users.”

Pachter that believes social games, which are actually casual games, won’t impact the console business when it comes to Sony and Microsoft. But they already have impacted Nintendo, in terms of that company’s mainstream audience. He said the Wii has last gamers to social games, and he doesn’t expect Wii U to draw them back. Social games are also impacting the portable gaming space.

“Handhelds are under assault from tablets and smartphones, which is one of the fastest-growing sectors of social games,” said Pachter. “People who have handhelds are either hardcore Mario nuts or kids under 12. But those kids are now moving to tablets and smartphones. As soon as my kids got an iPod touch, they put away their Nintendo DS. My two young daughters have spent $17 between them on games for the past two years and the $4.99 game they bought they thought it was a rip-off. Free games and smartphones and tablets destroyed the casual market for handhelds.”

While free-to-play games continue to gain momentum, Pachter believes this business model is a mistake for the Western culture.  “We don’t get any entertainment for free, whether it’s movies, TV, music, Hulu or NBC.com” said Pachter. “Everything has ads. If you’ve played Words with Friends on Facebook, and 19 million people have, it’s ad-supported. I haven’t heard a single person complain about ads between rounds. I think ads are coming to Farmville. If publishers can figure out a way to monetize the 98% of people who don’t pay for free-to-play games, then this industry will be huge.”

Pachter was critical of Electronic Arts and its focus on branded entertainment in the social games space. He said the company has had only one hit that they created, and that is in dire trouble. “I think EA’s view of branded entertainment that gets in the way of actually making money in social games,” said Pachter. “Peter Moore recently announced they were delaying a new social game a few months to make sure they deliver a polished gaming experience. But not having a polished game hasn’t stopped Zynga. They sometimes launch crappy games, but then they get better with updates.”  Pachter said that while the branded strategy is powerful to bring people in to a social games experience, the secret sauce is to exploit your installed base “EA had a massive installed base for The Sims Social and they’ve lost half of it,” said Pachter. “And they’re f**king around trying to make the next game better and that’s really dumb.””

Nordic Investor

G5 Entertainment: Reiterates 2012 targets

24 Feb

G5 Entertainment reported its result for FY 2011 this morning and as usual, the surprise element of the report itself was limited. However, there were slight deviations compared with the mid-quarter update given by the company in early 2012:

Consolidated revenue for FY 2011 is SEK 46m, up 101% compared to SEK 23m for FY 2010. This was 2% below the previously communicated forecast of SEK 47m. Operating result for the period is SEK 17m, up 93% compared to SEK 8.8m for 2010. This result was 3% above the previously communicated forecast of SEK 16.5m. Earnings per share for the period are SKE 1.72, 9% below the previously communicated forecast of SEK 1.90.

According to the company, the discrepancy of 2011 EPS compared to the forecast is due to the group’s international structure with different tax rates in different jurisdictions, coupled with multiple game projects, studio contracts, and royalty arrangements. Such structure makes it difficult to predict the distribution of profit between jurisdictions and provide accurate EPS guidance. Going forward, the management will be more conservative in its EPS guidance. However, EPS guidance for 2012 remains unchanged at SEK 3.2.

During 2011, the group had positive cash flow of SEK 12.5m . Cash reserves on December 31st 2011 amounted to 17.5m. We think it is great to see that G5 continues to invest heavily in game development – exactly what is needed to maximize the potential of the smartphone and tablet markets. Following the share issue to Traction in Q3 2011, the company has put the money to work, as promised. Management reiterates its ambition to maintain the balance between having sufficient cash reserves, profitability, and actively investing for future growth.

Outlook:

  • For the period January-March 2012, the management forecasts revenue of SEK 16m with an EBIT if SEK 5m, which imply a year-over-year growth of 68% and 28% respectively.
  • The management confirms the previously announced goal for the period January-December 2012 of SEK 87m revenue and EBIT of SEK 30m with an EPS of SEK 3.2.
  • The management will update the forecast for the period of January-December 2012 in Q1 report due on 15th May 2012.

Conclusion:

The G5 story is intact and the share is dirt cheap. Following the steep share price increase in early 2012, we are not surprised to see a sell-off today as people are taking profits and others had probably false hopes of a target increase for 2012. At a 12-months forward PE-ratio of around 13x, the G5 share is a bargain.

Nordic Investor

Barnes & Nobles: strong Nook sales in fiscal Q3 2011

21 Feb

Barnes & Nobles just released its fiscal Q3 2011 report,  saying net income fell as both physical and digital books rose, and the company continues to invest it its Nook e-book readers.

The largest traditional U.S. bookstore is also introducing a Nook Tablet device with 8 gigabytes of memory for USD 199. Its current 16GB device sells for USD 249.

Revenue from its Nook e-readers and digital catalog rose 38 percent to $542 million.

Net income for the 13 weeks ended January 28th fell to USD 52 million, or USD 0.71 per share. That compares to a loss of USD 60.6 million or USD 1 per share last year. Analysts expected USD 0.94 per share. Revenue rose 5% to USD 2.44 billion. Analysts expected revenue of USD 2.53 billion. Revenue in stores open at least one year rose 2.8 %. Barnes & Noble maintained its forecast of full year company sales of USD 7 billion to USD 7.2 billion. The Nook business is expected to generate USD 1.5 billion in the fiscal year ending in April.

The Barnes & Nobles share is currently trading up 3% in New York.

Last Friday, our top-pick G5 Entertainment announced that it will enter the Nook platform with initially 3 of its games. In the light of the rapid growth of the Nook device sales, this seems to be a wise move.

Nordic Investor

 

G5 Entertainment: Q4 2011 results preview

19 Feb

The Q4 2011 result reporting season is coming to an end but one of the highlights for us is still to come: G5 Entertainment will release its interim report for the period January-December 2011 on Friday, 24th February 2012.

As usual, the actual report will be less of a surprise as G5 has, in its typical fashion, already commented on the numbers in its mid-quarter update, published on January 4th, 2012. For the period of January-December 2011, the management confirmed its previously communicated forecast of SEK 47m revenue, SEK 16.5m operating result and earnings per share of SEK 1.90. This corresponds to achieving 106% revenue growth and 88% operating result growth compared to the same period of 2010. The total number of G5 game downloads on iOS and Android surpassed 33 million as monthly download numbers continued to grow in December 2011.

Furthermore, G5 commented that with the start of the holiday period, the group’s daily sales grew 70% from pre-holiday average in December 2011. The increased level of daily sales continued into January 2012.  Vlad Suglobov, CEO, added: “We benefited from these holidays as the increased number of users unpacked their new smartphones and tablets, and went into the digital stores to purchase content for their new exciting gadgets. With the portfolio of over 100 games on iOS, Android, and Kindle Fire, G5 offers a great choice of family-friendly entertainment that equally appeals to people of all ages. G5 has been growing rapidly in 2011, and the management is focused on continuing the group’s high pace of growth into 2012.” According to a recent update on the company’s website, G5 aims to grow its game portfolio to over 300 apps by the end of 2012, compared to over 120 apps at the end of 2011, i.e. an increase of some 180 apps.

The events during Q1 2012 so far included positive news both from the underlying markets (i.e. smartphones and tablets) and G5 company specific developments. For example, studies showed that the number of Americans owning a tablet doubled over the holiday season (see: http://nordicinvestor.net/2012/01/23/number-of-americans-owning-a-tablet-doubled-over-holidays/). Apple blew market expectations away with a monster Q1 result selling more than 37m iPhones and more than 15m iPads during the quarter (http://nordicinvestor.net/2012/01/25/apple-monster-q1-result-stuns-the-market/). Several competitors to G5 Entertainment, such as Glu Mobile, Gameloft and Zynga reported numbers that beat expectations and most importantly confirmed in their comments that the mobile gaming market is set to grow for many years to come. Company specifically, G5 Entertainment was successful at the bestappever awards 2011, with four of their games finishing among the top three in their respective categories (http://nordicinvestor.net/2012/01/28/g5-entertainment-successful-at-bestappever-awards-2011/). The company also announced that it will enter Nook platform, Barnes&Noble’s tablet device which has been gaining market share ever since its launch in November 2011 (http://nordicinvestor.net/2012/02/17/g5-entertainment-entering-the-nook-platform/). Last but not least, CEO Suglobov visited Stockholm at the beginning of the year and once again conveyed a confidend message to investors (http://nordicinvestor.net/2012/01/12/g5-entertainment-ceo-full-of-confidence-at-stockholm-meetings/).

All in all, a lot of encouraging and comforting newsflow for G5 Entertainment shareholders and we at Nordic Investor think this is particularly promising as it increases the likelihood that the company will deliver on its communicated 2012 targets of revenues of SEK 87m and an EPS of SEK 3.20. We do not expect the company to make any changes to the 2012 targets at this point. Overall, we do not expect the Q4 2011 report to be the source of any major news as such, rather a confirmation of the positive trends. Given the strong share price run over recent weeks, we would not be surprised if the absence of a target hike was to lead to an initial sell-off on the day of the report. However, we would view such a sell-off as the ideal opportunity to increase our exposure in G5 even further.


The positive events have not gone unnoticed by the stock market and the G5 Entertainment share enjoyed an overdue revaluation at the beginning of 2012 from the low SEK 20 -levels to currently SEK 45. Despite this impressive run, the company is only trading at a 12-months forward PE-ratio of 14x, hardly a reasonable multiple for a company with such high earnings growth and the track record that G5 has. CEO Vlad Suglobov has previously envisaged the mid-term goal of reaching revenues of SEK 300m and an EBIT of SEK 100m.  If the company can manage to capture the growth opportunities going forward as well as it has done in the past, these goals could almost be reached by the end of 2014. What this would mean for the share price is best shown with a back-on-the-envelope calculation:

  • The market is currently valuing G5 Entertainment at a 12m-forward PE-ratio of 14x.
  • In order to arrive at an implied EPS under the “mid-term scenario” (i.e. revenues of SEK 300m and an EBIT of  SEK 100m), we make the following assumptions: a) a financial net of zero, which is conservative since G5 Entertainment has actually a net cash position and b) a tax rate of 15%, i.e. in-line with current levels. This leads us to a net profit of SEK 85m under the “mid-term scenario”, which implies an EPS of SEK 10.6
  • Applying the same 12m-forward PE-ratio than today, this would mean that the G5 Entertainment share should trade at close to SEK 150 at the beginning of 2014, i.e. in two years time.

Interestingly, at SEK 150 we are still using a PE-ratio of only 14x, which seems hardly fair for a fast growing, profitable company.  If the mid-term scenario was to materialize we expect the market to be willing to pay higher multiples by then. A PE-ratio of 20x would imply a fair share price of around SEK 210 by 2014.

 Nordic Investor

G5 Entertainment: A winner of the tablet and smartphone hype

18 Feb

Amazon.com is notoriously secretive about the shipment numbers for its table Kindle Fire.  That also happens to be a habit that rival bookseller and tablet purveyor Barnes & Noble picked up on too for its Nook device. Tablet top dog Apple is one of the few players that isn’t coy about handing out its digits, but when you’re king of the hill, who wouldn’t want to flaunt figures like these?

Thankfully, iSuppli has released its latest batch of estimates on the state of the tablet market as of the fourth quarter. The market-intelligence specialist estimates that Amazon shipped 3.9 million Fire tablets in that timeframe, promptly jumping to claim the silver medal with a 14% market share. The overall market grew from 17.4 million units to 27.1 million units, a 55% bigger pie. Apple’s shipments grew 39% to 15.4 million, but that growing base made Cupertino’s market share slip. Samsung’s 2.1 million tabs moved was just an 8% increase, while B&N’s units soared by 156% to 1.9 million tablets on the heels of its new Nook Tablet.

Interestingly, iSuppli analyst Rhoda Alexander said Apple’s biggest competitor was itself, as the iPhone 4S launch provided a competitor for prospective buyers’ disposable dollars. Alexander attributed the surge in Google Android tablets to the Fire and Nook, since other Android players were forced to cut prices to compete, helping to spur sales.

The researcher expects the iPad 3 demand to outstrip supply for several months once it’s released. With price competition heating up in the Android arena and threatening profitability, iSuppli expects vendors to start considering Microsoft Windows 8 more seriously, and thinks the tablet market will see a slew of Windows 8 and ARM Holdings-based tablets hit the market late this year.

Total tablet shipments for 2011 came out to 65.2 million, topping the company’s forecast of 64.7 million. Compare that to the 17.4 million overall shipments in 2010 and you’ll see 274% growth – in other words, shipments nearly quadrupled.

A clear winner of these developments is our top-pick G5 Entertainment, which is developing games for all of the platforms. As late as yesterday, G5 announced that it will enter the Nook platform and it is probably a fair guess that it will not take too long until they will enter the Windows platform as well. G5 Entertainment is a debt free company with an EBIT margin of around 35%, that has a strong track record and is expected to grow earnings by 80%. It is a unique opportunity to participate in the smartphone and tablet growth and its stock is trading a very conservative 12-months forward PE-ratio of 14x.

I am long G5 Entertainment and you should be too.

Nordic Investor

G5 Entertainment: Entering the Nook platform

17 Feb

Our top-pick G5 Entertainment is about to enter the app market for the Nook Color and Nook Tablet and has three games ready for release in the coming weeks. Initially, G5 will publish its classical line-up for Nook, including Stand O’Food, Supermarket Mania and Mahjongg Artifats.

Commenting on the initiative,  Marti Miernik, Head of Communications of G5 Entertainment is quoted saying: ”Mobile gaming has taken off! The continued growth of smartphone and tablet sales and increasing app downloads – all point to a bright future for the industry. With tens of millions of gamers already part of our gaming network, the demand for G5 games is continuing to accelerate. We’ve got an amazing line up of games ready to share with our gamers. We’re very pleased to extend our offerings to Nook platforms.”

The new version of the Nook Tablet is a low-price tablet computer sold by Barnes & Noble which became available in November 2011 at a price of USD 249, directly competing with Amazon’s Kindle Fire. Barnes & Noble announced recently via press release that sales of its entire Nook lineup were up 70% over last year. This includes the Nook Simple Touch E-ink eReader, the new Nook Tablet and the older Nook Color. Barnes & Noble went on to state that their sales figures show the majority of that impressive sales increase was due to the release of their Nook Tablet. Accordingly, they also stated that even though sales of their Nook Simple Touch were lower than they had hoped, the increased sales strength of the Nook Tablet has carried their entire lineup to their current record-breaking sales levels.

Along with the Amazon Kindle Fire, the Barnes & Noble Nook Tablet has garnered 40% of the Android tablet marketplace. Sales success for the Nook Tablet was strong through the all-important 2011 holiday shopping season, and by December 9 Barnes & Noble had sold 1 million units of the Nook Tablet that was released on November 16. While the Amazon Kindle Fire beats the Barnes & Noble Nook Tablet in the retail price battle by USD 50, there are significant areas where the Nook Tablet outshines the Kindle Fire. When considering the virtues of a portable device, weight is always something that consumers have to take into account, especially with a device that is held in the hand as it is used. The Barnes & Noble Nook Tablet weighs 14.1 ounces to the Kindle Fire’s 14.6 ounces, and what may seem as an insignificant 0.5 ounces actually makes a huge difference over time.

And with a pixel density of 169 pixels per inch, the Nook Tablet outshines the iPad and iPad 2 which broadcast in 132 pixels per inch. The processor on board the Nook Tablet is the same as you will find in the Motorola Droid Bionic and Droid RAZR, a dual core Texas Instruments OMAP 4 processor clocked at 1.0 GHz. And in one very significant area of improvement over the Kindle Fire, the Nook Tablet delivers 1.0 GB of RAM system memory, basically double that of the 512 MB the Kindle Fire offers. The Nook Tablet also offers a microSD slot which allows for expansion up to 32 GB of storage, and delivers twice the onboard storage of the Kindle Fire, at 8 GB.

Another great move from G5 Entertainment. Releasing its games to new platforms is a great way to push earnings as the vast majority of the development costs are already taken. We expect that Nokia’s Windows smartphones will be next.

Nordic Investor

7 key trends in app sales

16 Feb

For all of our readers who like the G5 Entertainment story, App Annie published an interesting set of “7 key trends you need to know about in the “Rise of the Planet of the Apps”” today. A lot of good stuff that helps to analyse the mobile gaming market in general and our top-pick G5 Entertainment in particular.

In summary the 7 key trends in the app galaxy as identified by App Annie are:

1. East Asia – Land of the Rising Downloads: East Asia was a fertile land for Apple in 2011. In particular, China saw a 298% increase in downloads and a 187% increase in revenue, whilst Japan saw a 98% increase in downloads, and a 88% increase in revenue. These markets are now significant not just because of their sheer size, but also the growth rate. These markets are becoming increasingly important for international app publishers – notably apps such as Angry Birds and Fruit Ninja already have huge audiences in these regions. Look for international app publishers to continue to raise their game in their understanding of localization, Asian tastes for UI and local marketing channels.

2. Norway – Planet of big money downloads: In a global comparison of average revenue per app downloaded, Norway has emerged top at $0.37 per download, nine times more than up-and-coming superpower China.* When looking at app store monetization, it appears there are only very loose correlations between GDP per capita and $ per download by country. To get the full equation, one needs to consider other factors including smartphone penetration and local currency support.

 3. Biggest prize money in the US (and Japan): The #1 grossing app in the US generates nearly 10x the revenue of the #1 app in China.* The most surprising insight is that the top app in Japan earns 90% compared to the US for a country that has 1/6 the smartphone population (according to analysts). What’s significant is that you need only acquire a fraction of the users in Japan to earn the same revenue as in the US.

 4. In-App Purchase (IAP) revenues rocket: The absolute growth of freemium and in-app purchase revenues has been well-documented. We go one level deeper to see if apps with in-app purchases actually earn more revenue on a per app basis.  The result – In Jan 2011, the top 100 apps with IAP and without IAP were monetizing the same amount per app. By Dec 2011, apps with IAP were monetizing 2.2X more than apps without IAP. If you have a great product, you’ll raise your revenue ceilings with a freemium rather than premium model. We’ve seen leading publishers like EA, Glu, and Gameloft place bets on freemium in the past year with considerable revenue gains.

5. Taking flight – Growth rate of iPad downloads: “I already have a Macbook Air, and an iPhone, so why do I need an iPad?” Despite this common and yet unresolved issue, downloads on iPad for 2011 have grown 200%, compared to 70% for downloads on iPhone. Data suggests that the tablet will continue to convert notebook and smartphone owners at an increasing rate, and eventually represent 60% of the PC market by 2015 (SOURCE: IDC and Gartner).

 6. iPad – A significant slice of the iOS pie: Revenues from iPad apps are now contributing to 30% of overall iOS revenue, with iPhone and iTouch app revenues contributing 70%. The significant revenue share validates Apple’s continued efforts in iPad innovation and marketing, which would soon manifest in the rumored upcoming release of iPad 3. This should also be of significant interest to Google, who have yet to establish their own consumer market for tablets.

 7. iPad – double the dollar sunshine: The iPad, at 2.13X more pixels, is generating 2.4X more revenue per download compared to the iPhone. Other factors that could contribute to this include the difference in app prices, and differences in consumer use. These characteristics require a different thought process in iPad design and development, going beyond simply increasing image resolutions for the bigger device.

* China is chosen as the reference point in this comparison, but China is not the country with the globally lowest revenue for #1 grossing app or in terms of revenue per download.

Source: http://www.appannie.com/blog/infographic-rise/

Nordic Investor

#Zynga Q4 2011 report beats analyst expectations

15 Feb

Zynga, the online game maker of hits like FarmVille and CityVille issued its Q4 2011 earnings report on Tuesday, its first since its IPO in December. Zynga recorded a profit of USD37.2 million, or 5 cents a share, on an adjusted basis, a drop from the year-earlier period. While its revenue totaled USD 311.2 million, a 59%  increase from the year-earlier period, it was a mere 1.4% gain from the previous quarter. Still, on both metrics, the company managed to beat analysts’ expectations.

“We saw great momentum in mobile and advertising and ended the year with a strong pipeline of new games,” Zynga’s chief executive and founder, Mark Pincus, said in a statement. “We are excited about the opportunities in front of us to continue delighting our current players and to bring play to millions of new people.”

On an unadjusted basis, Zynga did report a net loss of $435 million, mainly because of USD 510 million in stock-based compensation to employees that was booked after the company’s I.P.O. 

Investors are sending down the Zynga around 9% as we speak, having risen nearly 7%  in yesterday’s session. “It was a little softer than what we were expecting,” Ken Sena, an Evercore Partners analyst said in an interview late Tuesday, referring to the company’s revenue. “It’s early days, but based on our view we do feel the stock price is ahead of itself.”

Zynga, which still makes the vast majority of its money on Facebook’s platform, is trying to become less dependent on the world’s largest social network and its original stable of hits. In the last few months, it has introduced two major franchises, CastleVille and Hidden Chronicles, and increased its investments in mobile platforms. The San Francisco-based company is also preparing to introduce Project Z, its independent gaming platform that uses Facebook Connect, which is currently being tested internally. In its earnings conference call with investors, Zynga said it was closely tracking the online gambling industry and would be well positioned to develop new projects in that category, based on the success of Zynga Poker, one of its earlier franchises.

“We’ve been investing heavily to build out our product pipeline,” said John Schappert, Zynga’s chief operating officer, in an interview. “The more fun, accessible and social a game is, the more players become payers.” Zynga’s mobile platform had 15 million daily active users by the end of 2011, Mr. Schappert added.

Including today’s drop, the Zynga share is trading at a 12-months forward PE-ratio of 42x on an expected earnings growth of 41%. This compares to our top-pick G5 Entertainment which trades at a 12-months forward PE-ratio of 14x on an expected earnings growth of 68%.

I am long G5 Entertainment and you should be too!

Nordic Investor

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