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Increasing revenue but not profit, mobile game manufacturers' stock prices have risen all the way

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#industry analysis
Wed Dec 02 2020

This year, the game industry is stimulated by the "home economy", and the number of active users and revenue have increased significantly in head games. For example, the daily average DAU of "Honor of Kings" has exceeded 100 million since this year; the DAU of "Roblox" this year has increased by 82% year-on-year. In Japan, where the game market has not changed much in ten thousand years, the scale of the mobile game market in Q3 this year has increased by 32.2% year-on-year, and has grown since 2014. The fastest quarter...


In the capital market, there has been a “CP investment fever” in the primary market, and several start-up R&D companies are valued at more than one billion yuan; in the secondary market, game stocks are sought after by funds to track the index of major global game manufacturers Video Game Tech For example, the Index has risen by 64.56% this year, and the rate of return is still very good.


The performance of some overseas mobile game manufacturers that everyone is familiar with is as follows. From the data point of view, most manufacturers' revenues are still growing year-on-year, but there is a phenomenon of "increasing revenue without increasing profits" or even losses.



Glu Mobile accidentally loses money


Relying on the two pillars of "Design Home" and "Covet Fashion" this year, Glu Mobile has achieved significant revenue growth.


Glu Mobile’s financial report showed that in the first three quarters of this year, "Design Home" had revenue of US$161 million, a year-on-year increase of 24.29%; "Covet Fashion" had revenue of US$63.6 million, a year-on-year increase of 31.4%. Even the five-year-old game "Kim Kardashian: Hollywood" revenue increased by 142.37% year-on-year.



Glu Mobile's main games are basic dress-up, simulation and sports, which are very suitable for single player play. Therefore, it is completely predictable that Glu Mobile games will benefit from social distancing. In terms of new games, the performance of "Disney Sorcerer’s Arena" exceeded expectations and its commercialization was strong. Glu Mobile has tried repeatedly in making games with well-known IPs.


In the secondary market, Glu Mobile is also quite sought after. Since the beginning of this year, Glu Mobile's stock price has risen by 64.9%.


But Glu Mobile finally made some money last year, and now it's losing money. A review of Glu Mobile’s financial report found that Glu Mobile’s research and development costs have fluctuated between US$25-30 million in the past few quarters, while the purchase cost has soared from US$28 million to US$65 million.


In addition, since most of Glu Mobile's games are authorized by IP, they have to pay a higher authorization fee. This has resulted in Glu Mobile’s thin profits and repeated losses after increasing purchases. The financial report shows that the license fee paid by Glu Mobile is comparable to the purchase cost, accounting for more than 30% of the total revenue.


Although there are star shareholders like Tencent behind Glu Mobile, it still makes a lot of hard money overall. This is not a loss this year.


King: "Candy Crush Saga" has annual revenue of over 1 billion US dollars


"Call of Duty" has always been a cash cow for Activision, especially since the launch of "Call of Duty M". In the Q3 financial report, Activision stated that the performance of "Call of Duty" on consoles, PCs and mobile terminals is the biggest driving force for performance growth. Among them, "Call of Duty M" became the highest cumulative revenue among the new games (US market) launched in October last year.


However, "Call of Duty" still cannot conceal the achievements of "Candy Crush Saga". The board of directors of Activision Blizzard believes that "Candy Crush Saga" will have more than $1 billion in revenue this year and will continue to grow in the future.



King will launch the mobile game "Crash Bandicoot On the Run" of Activision's well-known IP "Crash Bandicoot" next spring. There are currently 10 million reservations for "Crash Bandicoot on the Run".


Zynga's acquisition is addicted to another $2 billion acquisition this year


Zynga's games also performed well this year. Mobile game revenue continued to grow, from US$387 million in Q1 to US$484 million in Q3, maintaining a growth rate of about 11%. In terms of advertising revenue, it increased from US$59 million in Q1 to US$67 million in Q3, maintaining 6 % Growth rate from the previous month.


Zynga got the sweet spot in acquiring Smail Giant Games and Gram Games, and this year it acquired Turkish casual mobile game developer Peak Games for US$1.8 billion. This transaction will be completed in the form of US$900 million in cash + US$900 million in stocks, and the total price has broken the highest purchase price of Zynga. The previous record was that Zynga acquired 80% of Small Giant Games for US$560 million in 2018.


In October, Zynga bought another 80% stake in ultra-casual game developer Rollic for US$168 million. Rollic's well-known games include "Go Knots 3D" and "Tangle Master 3D".



The game makers acquired by Zynga are actually very competitive. Both "Toon Blast" and "Empires & Puzzles" have a good market performance. For this reason, Zynga also needs to continue to pay a certain amount of consideration for acquisitions as a reward. This is also a reason for Zynga's loss.


As a result of successive acquisitions in recent years, Zynga's goodwill has also been 2.986 billion US dollars, accounting for 57.98% of total assets. At present, Smail Giant Games, Gram Games, Peak Games and other vendors are still on the rise. Everyone is hello and I am happy. Once one of the manufacturers' performance falls short of expectations, it will bring a thunderstorm of goodwill to Zynga and cause a lot of losses.


Roblox, the world's largest UGC game community, is still losing money


Roblox is finally listed.


"Roblox" can become one of the world's largest creative platform games. Currently, there are more than 31 million daily active users worldwide, an increase of 80+% year-on-year. Half of the users are children under 12 years old. The "Roblox" fire also attracted Tencent, which not only represented the "Roblox" national server, but also participated in Roblox's G round of financing.



"Roblox" is actually more like a creative community. Players buy tokens to pay for various derivative games and skins, or directly purchase "Roblox" members to play some paid content. Roblox then pays developers a share based on sales. At the same time, there are advertisements on the "Roblox" platform. According to the prospectus, Roblox is expected to allocate $250 million to developers this year, 1.27 times that of last year.


Although "Roblox" saw rapid user growth during the epidemic this year, it still failed to make a profit. In the first September of this year, Roblox lost US$203 million, mainly because it paid developers a large amount of creation subsidies.


"Lineage 2M" sells big, NCSoft profits soar


NCSoft's performance this year is very good. In the first nine months, revenue increased year-on-year and net profit rose nearly 66% year-on-year. Such performance basically depends on the big sales of "Lineage 2M".


"Lineage 2M" was launched at the end of last year. This year is the first full year of the launch. The influence of "Lineage" IP in Korea needless to say, "Lineage M" has always ranked first in South Korea's best-selling list. "Lineage 2M" has been ranked second in the best-selling list for a long time following "Lineage M" after its launch.



The financial report shows that the actual contribution of "Lineage 2M" even exceeds that of "Lineage M". "Lineage 2M" earned 682.9 billion won this year, and "Lineage M" earned 617.1 billion won.


South Korea is still the largest source of revenue for NCSoft. Driven by the strong performance of the "Lineage" series of mobile games, revenue in South Korea has soared this year.


The postponement of "DNF Mobile Games" disturbs Nexon's dream


To be fair, even if Nexon does not have "DNF Mobile Games" this year, other games have performed very well.


Nexon's new tour lineup this year includes "Rush+" (the international version of "Rush Kart Mobile Game") and "Country of Wind: Swallow". In particular, the mobile game "Nation of Wind: Swallow", an IP-based mobile game adaptation of the old mobile game launched on Q3, performed well. The official description is "strong performance in the first launch", and the game is "exceeded expectations".


Due to the outstanding performance of new games, combined with the continued growth of revenues from old games such as "Adventure Island M" and "FIFA Online Mobile Games". Nexon's revenue in South Korea's base camp continued to grow this year, and Q3 saw a year-on-year increase of 115%.


Due to the aging of "DNF" terminal games and the high base of "Running Kart Mobile Games" last year, the revenue of Nexon's largest overseas market in China continued to decline. The proportion of revenue in China in Q3 has fallen to 20%, a record low in recent years. Last year, Nexon also estimated that revenue in China would drop to about 23% before the launch of "DNF Mobile Games".


The failure of "DNF Mobile Games" to go live as scheduled was a big blow to Nexon, which directly led to the failure to meet the fiscal year expectations. The day after the news of the postponement of "DNF Mobile Games" came out, Nexon's stock price plummeted 12.5%.



This year, Nexon controlled Embark Studios, which was created by the original "Battlefield" producer, and will achieve 100% holding in the next 5 years. Embark Studios is using Unreal 4 to develop a multiplayer online game.


Emerging vendors have different situations


Pearl Abyss launched "Black Desert M" last year, but there are no new games listed this year. Superimposed on the high base of last year, this year's revenue is normal.


This year's "Black Desert" IP revenue fell by about 13% compared to last year, which has a significant impact on Pearl Abyss. The good news is that after NetEase took over the Chinese region of "EVE Online", the number of core players has increased by 30%, which is a good "new start".


Garena's chicken-eating mobile game "Free Fire" has continued to develop mature markets such as Europe and the United States after the fire in Latin America. Currently "Free Fire" is already the third largest shooting game in the United States. Garena's financial report shows that in Q3, the revenue of "Free Fire" in Latin America and Southeast Asia reached a new high.



SEA, the parent company of Garena, is also doing well in e-commerce and payment, and is worthy of being "Tencent in Southeast Asia".


The stock price increase far exceeds the profit growth rate


Under the epidemic, the revenue growth of mobile game manufacturers this year is still impressive. However, due to the erosion of purchase costs and licensing costs, many game manufacturers have increased their revenues but not profits. Manufacturers such as Glu Mobile and Zynga also suffered book losses.


Compared with increasing revenue but not profit, the increase in the share prices of these overseas game manufacturers is even more breathtaking. The share price of Pearl Abyss, whose performance has fallen, has risen by 14.97% this year; the share price of Zynga, whose losses have expanded year-on-year, has risen by 34.58% this year; and the share price of Nexon, whose "DNF Mobile Games" has suffered and its profits have doubled this year...


With the vigorous printing of money in the United States, game stocks that have benefited from the epidemic have become popular among overseas investors.


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