M&A activity in the mobile gaming industry has been extremely high in recent months. Probably the most prominent example is the takeover of King Digital Entertainment (Candy Crush) by Activision Blizzard for a hefty USD 5.9bn price tag. Furthermore, Tencent, one of China’s biggest Internet companies, bought an initial stake of 15% in Glu Mobile (Kim Kardashion Hollywood) during 2015 and only recently increased its total holding in Glu Mobile to 21.5%. In Europe, Media conglomerate Vivendi is in the middle of a hostile takeover attempt of Gameloft (Modern Combat etc). After acquiring 30% of Gameloft on February 18th, Vivendi has made an offer to take over the company for EUR 7.20 on February 29th.
Still under the radar of most international investors, Sweden listed G5 Entertaiment remains the only play on the fast growing mobile gaming market on the Nordic stock markets. G5 recently reported 2015 revenues of SEK 384m, which was up 48% compared with 2014. EBIT amounted to SEK 19.8m and marked an increase of 120% y-o-y. G5 has made an active push towards more and more Free-to-play (F2P) games and CEO Vlad Suglobov stated in the year-end report that the company “has more F2P games in the development pipeline, including G5’s own games that we plan to release during 2016.”
We find it promising that the company has started to prove that growth and profitability do not need to be contradictory. New games, when launched, require support with extra marketing spending which consequently leads to a negative effect on margins short-term. However, the company seems to manage to retain many users once it has acquired them. G5 has developed an in-house analytics platform, allowing it to track return on investment in user acquisition and making sure to acquire valuable users who stay long and pay back significantly more than the cost to acquire them.
It remains to be seen whether G5 Entertainment will attract the attention of a suitor in the future. Given its growth and profitability and the high degree of consolidation in the mobile gaming sector, we would not be surprised.