Archive | May, 2012

#Paragon Report: #Zynga and #Glu Mobile to benefit from mobile gaming success

28 May

US research setup Paragon Report (www.paragonreport.com) is out pushing mobile gaming stocks today.

The growing demand for mobile devices has provided significant opportunities for the mobile gaming market. Revenues for mobile gaming are expected to skyrocket from $5 billion to $16 billion in 2016 according to ABI research. The Paragon Report examines investing opportunities in Mobile Gaming Industry and highlights Zynga and Glu Mobile as beneficiaries.

According to Newzoo, a market research firm focused purely on the games industry, the number of U.S. mobile gamers has increased from 75 million to 101 million. Out of the 101 million 69 percent play on smartphones and 21 percent on tablets. The mobile gaming market has seen a large increase in the conversion of “non-paying” players to “paying” players. The total number of paying players has increased 35 percent to total 37 million Americans. The growing number of paying players shows great potential for revenue growth for mobile gaming companies.

American Express and Zynga, the world’s leading provider of social games services, recently announced the launch of Zynga Serve Rewards, a new program that is tied to the Serve digital wallet and breaks new ground in the prepaid card market by offering rich in-game incentives for everyday spending. “We’re excited to partner with American Express to invent new ways for people to experience Zynga play in more parts of their day,” said Mark Pincus CEO and Founder of Zynga. “Together we can add surprise and delight to everyday shopping.”

Glu Mobile, a leading global developer and publisher of “freemium” games for smartphone and tablet devices, recently announced the launch of its new Android subscription service, Glu VIP Club. Glu also announced a universal currency called Glu Credits for use across top Glu Android titles. The Glu VIP Club allows users to receive significant bonus Glu Credit value as part of a monthly membership fee.

We at Nordic Investor continue to prefer G5 Entertainment in the mobile gaming sector. The company has an impressive track record in this young industry, sits on a net cash position and aims to continue to grow at 100% p.a. over the coming years. You get all that for 11 times expected 2012 earnings.

Nordic Investor

PS: Looking for exposure to the fast growing smartphone and tablet market? Check out our top-pick G5 Entertainment (http://nordicinvestor.net/g5-entertainment/)

#G5 Entertainment: Ranking check

23 May

It’s shaky again on global stock markets. In times like these it is important to focus on the underlying business of your investments. Nordic Investor is constantly screening the most important global app markets, with the help of a co-operation partner. This enables us to keep track of how things are going for the different app developers, such as our top-pick G5 Entertainment.

The most important message first: Business is going great for G5!

In the iOS markets of Australia, Canada, China, France, Germany, Italy, Japan, Netherlands, Russia, South Korea, Spain, Sweden, UK and USA, G5 Entertainment started Q2 2012 with around in total 65 games among the top 100 top grossing charts in each of the countries. As of this morning, this amount had increased to over 121, and the trend is accelerating:

The same positive development can be seen in the top 200 grossing rankings, where G5 Entertainment started the quarter with 163 apps among the top 300 grossing charts in the aforementioned countries and today it is almost 210:

Top 300 grossing rankings:

Top 400 grossing rankings:

Top 10 grossing rankings (Mac):

Google Play:

As you can see, G5 Entertainment’s business is doing very well. We can therefore happily weather the current storm in the equity market. The G5 share closed today below SEK 37, which values the company at 11.5 times expected 2012 earnings. This is cheap and the patient investor will be rewarded.

Nordic Investor

#Facebook: IPO failure highlights valuation bubble

22 May

Facebook’s continued fall has put the social network on pace to be one of the worst large U.S. IPO starts in the past five years.

The social network’s much awaited offering was in the midst of its second-straight day of declines, dropping as low as $30.98 today. That would have been an 18.5% drop from its IPO of $38.  The stock has recovered somewhat, recently down 3% to $33. That also marks a 13% decline from its IPO price, equal to the worst three-day start for an IPO that raised over $1 billion since 2007, according to Dealogic.

There have been 23 U.S. IPOs over that size since 2007. Through the first three sessions, only asset-manager Och-Ziff Capital performed as poorly, losing 13% as well, according to Dealogic. In fact, only seven of the deals ended their first three sessions in the red, the data provider says.  Facebook would have to fall further to be worst first-week performer, given Och-Ziff ended its inaugural week down 24%. Overall the 23 IPOs averaged a 15.6% gain during their first week, according to Dealogic, meaning Facebook would have to hit $44 by Thursday’s close to catch them.  Among deals that raised over $500 million since 2007, Facebook would be on pace for the fourth-worst first week, behind Och-Ziff, Orbitz Worldwide and Clearwire. (Orbitz and Clearwire both lost 17%.)

 The Facebook-bubble is bursting

As with other bubbles — from tulips to dot-coms — the social-media boom was created by greed and inflated by fear.  The greed that started this bubble came from those in the private investment community who — by design, of course — are out to maximize profits. People invest money to make money, after all, so it’s no surprise that VC firms have rushed in to fund so many social-media start-ups.

The fear that inflated it emanated from professional money managers terrified of missing out on the “hot” IPOs of the past 12 months; that fear is ironic when you consider that these fund managers are, for the most part, playing with other people’s money — in millions of brokerage and retirement accounts — and thus have no real skin in the game. Now that the VC-fed bubble in social-media stocks has met the sharp anger of all those money managers counting up their Facebook losses, look for the public markets to start picking winners and losers in social media. The tide that has lifted all social-media boats is clearly ebbing.

Companies that can’t produce annual net income despite billions of dollars in annual sales — including Groupon and Zynga — are going to end up as also-rans or takeover fodder at valuations well below their current prices. But don’t grieve for their insiders, who cashed out big even before their disastrous IPOs. Read: Facebook, Zynga, Groupon minting billionaires.

At the same time, there’s a reasonable chance that Facebook and LinkedIn will survive as public companies — given that every new technology market produces two or three winners. (For example, think Intel and AMD in chips; Dell, H-P and Apple in personal computing; Oracle, IBM and Microsoft in enterprise software; or Google and Amazon.com in Internet services.)

But it will take both Facebook and LinkedIn a long time to grow into their current valuations.

 Based on Tuesday’s share price of around $34 a share, Facebook is trading at about 65 times expected 2012 earnings of 52 cents a share, according to the consensus earnings estimates compiled by Thomson.

LinkedIn is even pricier. At $96 a share, it’s trading at 143 times expected 2012 earnings of 67 cents a share.  Given that froth, even the best of the social-media stocks might have much farther to fall.

We are much more attracted to the mobile gaming sector, where money is made and growth prospects look rosy indeed. With a strong track record of profitable growth and a rock solid balance sheet, our top-pick remains G5 Entertainment. Its share is currently trading at below 12 times expected 2012 earnings (according to management guidance). For our full take on the case please check out: http://nordicinvestor.net/g5-entertainment/

Nordic Investor

#Apple’s iPad expected to dominate growing tablet market

21 May

The online edition of the Wall Street Journal recently reported that sales of tablet computers are echoing the “wild exuberance” of the cellphone industry in its early years. According to a report by market watcher IHS iSuppli which was issued last Tuesday, tablet unit growth will soar 85% to 126 million in 2012 and 63% to 205 million in 2013. Apple’s iPad is expected to dominate sales, capturing 61% of 2012 market share. But IHS iSuppli predicts that things could get more interesting for the industry (and CIOs) in late 2012 with the launch of a new generation of tablets that use the forthcoming Windows 8 operating system.

IHS iSuppli predicts that these ‘PC-type’ tablets will generate 8 million unit sales next year, a 160% increase over expected 2012 figures. By comparison, what IHS Suppli calls “media tablets,” such as Apple’s iPad, will boast a more modest—but still impressive—60% increase in sales with 197 million units in 2013. PC tablets will appeal to business users looking for desktop-like features such as opening multiple windows and access to traditional desktop applications. As CIO Journal reported, Lenovo is among the enterprise PC makers hoping to tap this demand, with a Windows 8 tablet.

Despite hopes for the PC tablet, Apple remains the vendor to beat inside and out of the enterprise. After dipping to 55.1 percent share of the tablet market in late 2011 owing to the launch of Amazon’s Kindle Fire, the company is on track to claim 61%, the same portion it had in 2011. IHS Suppli director Rhoda Alexander cited the Apple platform’s “complete hardware-plus-content ecosystem,” first forged with the creation of the iPod and the iTunes music store, as a significant obstacle for any rival to overcome.

IHS Suppli cited rumors concerning the possible deployment of a smaller 7.8 inch display version of the Apple iPad. If Apple does release such a version, IHS iSuppli writes, the emphasis will be on playing up the quality of the overall tablet experience, and not on a substantially lower price.

No matter which manufacturer will win the tablet race, app developers such as G5 Entertainment and Glu Mobile are set to benefit from the growth.

Noridc Investor

#G5 Entertainment: Strong Q1 report – new target established

15 May

G5 Entertainment reported a strong set of results this morning. Consolidated revenue for Q1 2012 was 17 388 KSEK, up 82% compared to 9 548 KSEK for the same period of 2011. This was 1% above the recently hiked guidance of 17.2 MSEK.

Operating result for the period came in at 5 753 KSEK, up 49% compared to 3 858 KSEK for the same period of 2011. This result was 3% better than the recently hiked guidance of 5.6 MSEK. Earnings per share for the period were 0.58 SEK. Management confirmed the previously announced goal for the period January-December 2012 of 87 MSEK revenue and 30 MSEK operating result with EPS of 3.2 SEK. Given the strong performance in Q1 and the strong rankings so far in Q2, we believe there is clear upside potential to the company’s FY 2012 guidance but we like management’s conservative approach to keep it untouched at this point.

Interestingly, G5 Entertainment is even reporting strong cash flow, despite the fact that the company is in a strong product expansion period with associated development costs. Even after these development costs,  cash flow was 1 108 KSEK, further contributing to the already strong cash position of now 18 518 KSEK.

The highlight in today’s report was nevertheless another fact, namely that management now officially announced its goal to turn G5 into a company with 300 MSEK annual revenue and 100 MSEK operating result in a couple of years.  Going forward, the management aims to keep the group’s long term average revenue growth at 2010/2011 levels. In connection with this announcement the management is changing its quarterly forecast update policy and will not be providing quarterly guidance or updates in the future.

CEO Vlad Suglobov has previously envisaged the mid-term goal of reaching revenues of SEK 300m and an EBIT of SEK 100m.  Now the company is making this an official goal. This is remarkable and given the growth opportunities going forward for both the market in general and G5 in particular, its seems fully realistic that these goals could be reached by the end of 2014.  This has naturally huge implications for the company’s share price going forward.

In order to arrive at an implied EPS at the new target stage (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 a 12m-forward PE-ratio in-line with current levels of around 12 times, this would mean that the G5 Entertainment share should trade at close to SEK 130 at the beginning of 2014. More reasonable multiples for a high growth story such as G5 of around 15-20 times forward looking earnings, imply share price levels of around SEK 160 -210.

We are long G5 Entertainment and you should be too!

Nordic Investor

 

 

 

#G5 Entertainment: Q1 2012 results preview

12 May

The Q1 2012 reporting season is coming to an end but for us at Nordic Investor the best is yet to come. On Tuesday, May 15th, our top-pick G5 Entertainment is due to open its books.

As usual, the actual result will be less of a surprise as the company has already communicated in its mid-quarter update on April 3rd that: ““For the period of January-March 2012, the management revises the forecast to 17.2 MKr revenue (up 8% compared to the previous forecast of 16 MKr), and 5.6 MKr operating result (up 12% compared to the previous forecast of 5 MKr). This updated forecast corresponds to achieving 80% revenue growth and 43% operating result growth compared to the same period of 2011. “ The full year target of revenues of SEK 87m and an EPS of 3.20 was left untouched on April 3rd and we would be surprised that G5′s conservative management will raise it next Tuesday, despite the fact that the developments so far in 2012 are very encouraging and we at Nordic Investor believe that G5 will be able to exceed its 2012 targets.

Gaining ground in a growing market

It will be interesting to see to what extend management will comment on the success of Virtual City 2 (see previous Nordic Investor “ranking checks”), which was released in early April for both iOS and Android and has helped both with its own absolute performance but also cross-selling wise to boost G5′s rankings in the top-grossing charts around the world. With the help of a co-operation partner, Nordic Investor is screening the biggest top grossing rankings for both iOS markets and Google Play and the trends in Q2 so far are very encouraging.  In the iOS markets of Australia, Canada, China, France, Germany, Italy, Japan, Netherlands, Russia, South Korea, Spain, Sweden, UK and USA, G5 Entertainment started Q1 2012 with around in total 65 games among the top 100 top grossing charts in each of the countries. As of this morning, this amount had increased to 108:

Looking at the Google Play rankings so far in Q2, the number of G5 games among the top 100 charts in the screened markets has increased from 1 to 11, among the top 200 from 13 to 38, among the top 300 from 28 to 64, among the top 400 from 41 to 91 and among the top 504 from 51 to 99. So G5 Entertainment is actually gaining ground in the smartphone and tablet market that by itself is growing dramatically. What a combination that is!


A separate phenomenon is the success of G5 Entertainment’s freemium game Virtual City Playground for the Mac platform, following a recent update. The Mac platform as such is not that important in monetary terms but be sure that top 10 rankings, amongst others in the USA, do add up to some handsome dollars as well. This morning Virtual City Playground was among the top 10 top grossing apps in 12 major countries:

On Tuesday, any comments regarding new freemium games would be highly appreciated as this form of monetization has proven to be superior for many developers. CEO Vlad Suglobov indicated in a recent Stockholm investor meeting that G5 plans to publish a further freemium title in the not too far future. We would also be interested to get an update on the “Build-alot-franchise”. In October 2011, G5 announced a co-operation with HipSoft to bring their “Build-alot-series” to smartphones and tablets but no further details have been communicated ever since. Potentially, this could be a candidate for a freemium-model which would explain why the porting process is taking such a long time.

We believe that G5 Entertainment is on track to deliver on its FY 2012 and chances are good they will even exceed them. Soon, 5 months of 2012 have passed and the company is so far delivering ahead of schedule and its own expectations, as indicated by its increase of guidance for Q1 2012. The download rankings in Q2 are highly in favour of a continued success story and our firm believe is that the market will sooner or later revalue the G5 share.  At a PE-ratio of 12.7x forecast 2012 earnings, it stands out as extra-ordinarily cheap given its track record and continued growth prospects.

Nordic Investor

#Mobile gaming: Storm8 successful on its own

9 May

www.techcrunch.com has an interesting articel about mobile gaming company Storm8.

“While it seems like mobile gaming companies are getting acquired left and right this spring, there are still plenty that are staying independent and doing just fine. Storm8, which is totally bootstrapped and was founded by Facebook alums, is one of them. The Redwood Shores-based company is saying that it has passed 300 million downloads and that its network of games reaches 100 million devices. CEO Perry Tam believes this means they reach 1 out of every 5 iOS and Android users (assuming 500 million devices sold or activated to date, which is pretty consistent with the numbers Google and Apple have shared so far). Storm8 declined to share anything about its daily active usage numbers.

“The company is profitable and we can stand on our own feet and sustain growth,” said chief executive Perry Tam in an interview. He plans to double Storm8′s headcount to 240 people by year-end. Storm8 was one of the very earliest movers in mobile gaming. Chief executive Perry Tam used to work at Facebook on the Credits team and saw the rise of social gaming giants like Zynga. He bet that there might be a similar opportunity on mobile phones and left Facebook to start Storm8. They first became known for menu-based, role-playing games like iMobsters and World War, but they also built out a casual label called TeamLava that launched Bakery Story, Restaurant Story and Fashion Story.

Being first to market meant the Storm8 was able to take advantage of cheap distribution when the iOS platform was less competitive (not unlike what Zynga did in the land grab era of the Facebook platform). The company had 10 of the top-100 grossing apps on iOS last year, according to Apple’s iTunes Rewind. Storm8 then moved onto Android and repeated the formula. Earlier this year, they were one of the first gaming companies to test Amazon’s in-app purchasing system and made $700,000 in the first month.

Last fall, Jason Kincaid said that the company might be raising $300 million at a $1 billion valuation. It didn’t end up happening. The reality — at least so far — is that mobile platforms have turned out to be very different from Facebook. There is no single company that has Zynga-like market share on iOS and Android. That’s a blessing and a curse. One the one hand, it means that there can be several successful and profitable mobile gaming companies. But on the other hand, it means that it’s hard for any single company to justify a valuation with a generous revenue multiple (since their fortunes are that much more dependent on whether they can sustain hits or not).

So the valuations in recent acquisitions, like $180 million for Zynga’s deal to buy OMGPOP and $210 million for GREE’s deal to buy Funzio, are much more moderate than the numbers that were talked about last summer. As a side note, Funzio’s founding team actually came from Storm8. They split over control of the company and then left to found a competing mobile gaming company. Tam declined to share his thoughts on the recent deals. ”We’re definitely aware of those transactions,” he said “It’s very interesting and we certainly don’t know the details or internal numbers so we cannot really comment on specifics.”

Even with these deals, there are plenty of companies that seem to be doing just fine without any buyers. Rovio this morning said it had $106 million in revenue for last year and Glu Mobile posted 73 percent quarter-over-quarter revenue growth last week, with smartphone revenues reaching $17.4 million up from $10.1 million in the holiday quarter. Outfit7, another totally bootstrapped mobile gaming company, also recently passed 360 million downloads and signed a deal with Disney to have its characters appear in an animated web series.”

Nordic Investor

 

PS: Looking for exposure to the fast growing smartphone and tablet market? Check out our top-pick G5 Entertainment (http://nordicinvestor.net/g5-entertainment/)

 

#Glu Mobile: Bullish interview with CEO de Masi

7 May

www.pocketgamer.biz has an interesting interview with Glu Mobile’s CEO Niccolo de Masi, who is clearly bullish about his company’s prospects and the ongoing M&A activity in the sector. More deals are coming – make your bets on who will be the next target.

After nine quarters of beating guidance, and now two quarters of rising revenue at the premium free-to-play publisher – even though it doesn’t expect to breakeven until Q4 – CEO de Masi is confident:   “We are sittting in the sweetspot,” he says of the current situation.

Pretty much every part of Glu’s business is on the up. It’s always been strong on iOS and Android, including Kindle Fire. All three markets are booming. Individual titles continue to generate strong quarterly revenue.  Blood & Glory did $2.7 million in Q1, Frontline Commando $2.3 million, the Contract Killer franchise did $3.8 million, while Gun Bros. – now 17 months old – still contributed $1.2 million, bringing its lifetime total to $9.1 million.  Glu’s even had a medium hit – its first – in the female-oriented casual market with Stardom.

Indeed, the company’s so confident about the future it’s spending $5 million of its $32 million cash pile buying the Deer Hunter licence from Atari.  “We’ve been licensing it for seven years, so you can see how much we’ve paid out in terms of royalties,” de Masi says.

“We’re confident we can be very successful with the brand on mobile, plus it will look great on the Mac Store and Apple and Google TVs as they come down the line. It’s a really good fit for us as a premium 3D action game publisher.”

De Masi also argues that deals such as GREE spending $210 million buying Funzio, and Zynga spending up to $210 million on OMGPOP just strengthen Glu’s position in the market.  “Any M&A activity is good for us,” he says, pointing out that Glu isn’t a one game company.  “As we’ve seen with Draw Something, if you have one game, it’s not going to stay at the top of the charts. Any title will drop over time. The thing is, we’re releasing 23 games in 2012.”

“OMGPOP and Funzio are one, two or three trick-ponies, if you want to call them that. We’re much more sustainable. We’ve proved that scale works.”

As to why the likes of Zynga and GREE haven’t bought Glu Mobile, he says he can’t comment specifically.  Yet with a current market capitalisation of $270 million, de Masi points out that Glu would be a much bigger deal.  “We’re a $500 million cheque,” he says.  “So that’s an affordability issue. Spending a quarter of your cash is different to spending over half your cash.”

Pocketgamer comes to the conclusion that Glu would be a complementary purchase for Zynga, which doesn’t have much mobile presence in 3D action gaming, and for the likes of GREE and DeNA, who are desperate to get scale into their social mobile gaming platform in the west – exactly what Glu has.  According to pocketgamer, there is no doubt that some sort of discussions are ongoing. All companies in the free-to-play space seem to be possible takeover targets at the moment, but de Masi doesn’t seem to care that much.

“We’ve had our IPO, so we don’t have VC investors who need to sell. Our stock is very liquid with millions of shares traded every day,” he says.

“As we keep getting better, we’ll continue to get bigger, which will make us harder to buy. But we’ll be happy being a $1 billion market cap company.”

We’ll strongly recomend to be long the mobile gaming space, with G5 Entertainment being our top-pick (http://nordicinvestor.net/g5-entertainment/).

Nordic Investor

PS: Interested in investing in a Mobile Gaming / Technology strategy? http://nordicinvestor.net/2012/04/24/survey-nordic-investor-mobile-gamingtechnology-strategy/

#Rovio: Ready for an IPO

7 May

Reuters reports today that Rovio Entertainment, the creator of Angry Birds games, said its finances were good enough for a listing after revealing a strongly profitable 2011 in its first public disclosure of business results.

The company forecast a strong year ahead, and said it was now preparing for an offering by ensuring it meets corporate governance requirements. “This company is preparing itself and getting ready,” Anders Lindeberg, Rovio’s head of investor relations, told Reuters.

Rovio reported 2011 sales of 75.4 million euros and profit before taxes of 48 million. The company did not provide historic data, but has said 2010 revenues were around $10 million. It also reported a 64 percent profit margin for the year. Rovio, originally founded in 2003, has been valued at up to $9 billion just over two years since it launched its first hit, Angry Birds for Apple’s iPhone.

Since then the games – in which players use a slingshot to attack pigs who steal the birds’ eggs – have been downloaded more than 800 million times and had 200 million monthly users are end-2011, just short of Zynga’s 240 million.

Rovio plans to launch several more titles in 2012, which include also a non-Angry Birds title, Chief Executive Mikael Hed said.

Rovio was upbeat about growth continuing based on growing cellphone sales and significant investments it has made in product development, branding, brand protection and corporate infrastructure. “2012 looks fantastic,” Hed told Reuters in an interview. “We have had some very strong download numbers over four months.” Its Angry Birds Space game was downloaded more than 50 million times in 35 days since its launch in March.

Rovio is also expanding its brand to toys and playgrounds, and is taking the birds to the big screen. The first full-motion animated movie featuring the characters is in works and the short animations are a YouTube hit. Consumer products, which includes merchandising and licensing, generated around 30 percent of revenues last year, with the share higher in the fourth quarter, Hed said.

Last year Rovio raised $42 million from venture capital firms including Accel Partners, which previously backed Facebook and Baidu, and Skype founder Niklas Zennstroem’s venture capital firm Atomico Ventures.

We would greatly welcome the IPO of Rovio both in order to be able to asses an investment in the company itself but also because it should further increase the attention for the mobile gaming space with our favourite pick G5 Entertainment but also Glu Mobile, at the forefront.

Nordic Investor

#G5 Entertainment: valuation check

4 May

Chart1: Selected gaming companies – valuation table:

Observation: The average 2012 PE-ratio for the selected peer group is 18x. The G5 share is currently trading at around 12x. That is despite the fact that it is clearly growing faster than its listed competitors and with a higher profitability.

Chart 2: G5 Entertainment share price versus implied share price using a 12-months forward PE-ratio in-line with sector average of 18x:

Observation:  For 2013, we have assumed revenue growth of 90% and an EBIT-margin of 34% with a neutral financial net and an unchanged tax rate. this leads us to an expected 2013 EPS of around SEK 6. Note that even if the market would continue to value the G5 share at the current level of 12x forward looking earnings, we would expect share prices levels north of SEK 70 towards end 2012/early 2013 (red line). If the market was to finally wake up, however, the green line is the one to look at as it shows the G5 share price implied by a 12 months forward looking PE-ratio of 18x (in-line with sector average).  As you can see, share price levels of close to SEK 110 seem realistic in that case.

Chart 3: G5 Entertainment- 12 months foward PE-ratio based on management guidance:

Observation: As indicated by the red trendline, there seems to be evidence that the market is slowly but steadily revaluing the G5 share. For a company with the growth and profitability track record of G5, the current PE-ratios of around 12x seem laughable at best.

Nordic Investor

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