Today Rovio Entertainment Corporation has released preliminary information about its Q4 2017 performance as well as a 2018 outlook. The release triggered a massive drop in the company’s share price, sending it down more than 50%. The current share price is 4.94 EUR, down from its last close of 9.95 EUR per share. Here is what gamers should know about the recent release and the resulting drop in the company’s stock price.
The drop in Rovio’s share price is most likely a result of a disconnect between investor and analyst expectations for the company and the company’s 2018 outlook. The company’s own 2018 forecast has both sales and operating margins remain relatively flat or decline slightly over 2017. In a world where investors expect growth, particularly in an industry believed to be growing.
The dollars and cents (or Euros)
According to the release, Rovio generated 297.2 million Euros in revenue in 2017, up 55% over the previous year. The company’s earnings before interest and tax were 31.4 million Euros (10.6%), up 85.8% year over year. Going forward the company expects to be between 9 and 11%, and revenue is expected to be 260-300 million euros.
While Rovio is a mobile gaming company, the Angry Birds brand has gone beyond smartphones and into theaters, toy stores, and clothing around the world. That being said, the company’s game business still generated approximately 83.4% of its revenue in 2017.
1 Euro is approximately 1.23 USD
If thought there were more ads than usual for Angry Birds Evolution, Angry Birds 2, or any of Rovio’s other games, chances are you weren’t imagining things. The company’s user acquisition investments grew 281.7% from the previous year, rising to 69.6 million Euros. That is 28.1% of the company’s game revenue going right into acquiring users. The company expects that number will grow in 2018 to approximately 30% of game revenue due to a rise in the per person cost of user acquisition.
While gamers may be familiar with Rovio’s games, they may not be aware of its steaming subsidiary. Hatch Entertainment provides a streaming game service for Android users in select countries (parts of Europe at the moment). It allows gamers to play a selection of streaming games including titles like Monument Valley, Crashlands, and Love You to Bits. At this time the service is ad supported, but a subscription option is in the works, as are releases beyond its current markets and a possible iOS launch.
Hatch has the potential to be a popular gaming platform in the future, but it is a long way from getting there. Aside from the obvious issue of streaming gaming on the go consuming data (though data consumption is said to be equivalent to hi-fi audio), it is not the only player in the game subscription market. GameStore offers downloads of a selection of games for a flat monthly fee, and Google is said to be working on its own streaming games service. While certainly an intriguing service, the future of Hatch is quite uncertain. Rovio has forecast that they will invest between 10 and 15 million in the company in 2018.
What should gamers take away from all of this?
While a company’s stock price is important, it’s not something gamers should focus on. What gamers should be aware of is that cost of user acquisition is rising, and that’s not great. At the end of the day if companies are spending significantly more on marketing, they will look to recoup their investment, and that can mean more aggressive in app purchases, or other tactics consumers might dislike.
Android gamers should also keep an eye on Hatch, as it’s a genuinely interesting gaming platform with potential. Gamers in 15 European countries can check out the company’s beta and give the service a try.