Mobile Gaming is Larger Than Ever

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Kevin Ford

June 18th, 2019

There’s no question that the mobile gaming industry is growing. PCs, tablets and smartphones are more attainable than ever before. This allows mobile gaming to be the largest category with a worth of more than $130 billion. This wasn’t always true. In fact, the billion-dollar leaders and top sales companies didn’t come easily.

Many game developers are looking to take the top spot in the app store. This increases competitiveness and changes the dynamics of the industry. As we look at how mobile gaming values have changed and developed over the years, it’s vital to examine the kind of pressure this leads to as well. The mobile gaming sector is now the fastest-growing in the market, making the value of mobile game developers even more critical.

Anytime a Risk is Taken, There’s Greater Chance of Reward

Any industry provides highs and lows. Developers of new apps face plenty of uncertainty in the market. It’s unlikely they will come out as a leader right from the get-go.

Before mobile advertising grew, taking risks wasn’t wise. Back then, Electronic Arts purchased JAMDAT, a Nasdaq-floated mobile game publisher for $680 million. This was the largest consolidation ever seen at that time in the mobile gaming industry. JAMDAT became the foundation for EA Mobile’s success.

As the years went by, this trend grew. NaturalMotion was purchased by Zynga in 2014 for $527 million. They released the CSR Racing game and began working on Dawn of Titans. At the time, they had an annual revenue of under $30 million, and that didn’t come from mobile game sales. This investment was seen as quite risky. Zynga paid about 20 times more than NaturalMotion’s annual sales while EA only invested 9 times of JAMDAT’s sales.

Keeping it Balanced

Let’s take a look at how mobile gaming continues to change by looking closer at Zynga.

At the end of 2018, they bought 80% of Small Giant Games for a price of $560 million. This is a larger deal than with NaturalMotion, but the companies “Empires & Puzzle” game was downloaded more than 24 million times in just 18 months. This acquisition led to a forward-moving financial future and continues to contribute to the company’s growth.

Companies like Zynga have plenty of cash access, shares and financing deals available to them. This makes acquisitions less of a risk and a valuable way to increase revenue. Let’s face it; the chance that a developer will create the next “Empires & Puzzles” hit is limited. That means there are fewer mobile game developers, especially with a strong track record.

Going Public

At one time, it was true that a mobile gaming enterprise wouldn’t survive on a public trading platform. Now, that thought has changed. It’s become a growing and favored trend to have companies sell shares on the stock exchange.

With several companies participating in this, it’s proved that companies won’t just survive, but also thrive. Public mobile gaming stocks continue to gain market share. Companies like Zynga, Electronic Arts, Netmarble and Swedish Indie Mag Interactive all prove they mean business.

In 2017, we saw a huge increase in valuations for these companies. Netmarble, a Korean publisher, received an $11 billion valuation. Furthermore, Swedish Indie Mag Interactive received a valuation of $130 million. By figuring the company’s value by the IPO share price, it’s simple to see a trend with the previously discussed deals.

What’s different is what happens when corporate M&A activity views a seller and buyer negotiating for a deal. Once the company is floated on the stock exchange, the value is daily set by many market forces. What we see is that all the companies in 2017 that floated, suffered. Each of them experienced headwinds, such as Rovio failing to educate the investors about its UA strategy. What’s most important is that they found themselves operating in a more competitive market with costs rising.

What happened in 2017 as a result of this was that the companies suffered a reduction in sales and market capitalization. This leads us to an even more critical point: timing continues to be the most valuable element of making a deal.

Kevin Ford

2019-06-18

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