Angry Birds IPO Will Be a Test for Digital Game Industry
"Angry Birds" soon may be catapulting into the stock market, a much riskier game than the mobile one that made the scowling critters famous in the first place.
Rovio Entertainment Ltd., which hit pay dirt with its addictive iPhone game and a hit movie, is widely expected to file an initial public offering on the Helsinki Stock Exchange as early as September, according to a number of media reports. The Finland-based company hopes to raise some $400 million, which would put the value of the company behind those colorful, round birds with the menacing eyebrows as high as $2 billion, Bloomberg News reported.
The potential IPO will be closely watched as a test of the economic durability of the fickle digital game industry: Similar entertainment companies with a hot commodity have disappointed after cashing in by going public. Many wonder if Rovio's branch-out into a film franchise and merchandise will help it fare better than its peers.
"It's probably the best time for them to go public," said Erik Gordon, a professor at the University of Michigan's Ross School of Business, noting the company's recent peak in revenues. "But it's a tough kind of business. You're only as good as your last hit."
Since the "Angry Birds" game first landed on iPhones in 2009, Rovio has been buoyed by a series of hits, although none have made the splash -- or achieved the cultural ubiquitousness -- of "Angry Birds." With more than 3 billion downloads, it was ranked as the most popular game ever on Apple iOS operating system.
Designed on a whim by Jaakko Iisalo, Rovio's sole designer at the time, "Angry Birds" was Rovio's 52nd game and the first to hit the jackpot when first launched in December 2009. It quickly topped the charts as Apple's most downloaded purchased app, holding the No. 1 spot 311 times between 2010 and 2015, according to mobile analytics company Sensor Tower.
By 2015 the game -- in which players use their fingers to launch birds on catapults toward fortresses full of mean green pigs to save their eggs -- had been downloaded 3 billion times and spiraled into the retail market with merchandise such as stuffed animals, pillows and T-shirts.
In 2016 "The Angry Birds Movie" generated $350 million at the box office globally, while games such as "Angry Birds Friends" and "Angry Birds 2" contributed to Rovio's 34 percent revenue surge -- up to $203 million -- over the previous year.
The movie, along with the launch of two new games this year, "Battle Bay" and "Angry Birds Evolution," helped boost Rovio's 2017 second-quarter revenues by 94 percent over the same period in 2016.
With peaking sales and popularity, the company would want to enter the market now, if ever, Mr. Gordon said, so it can obtain as high a valuation as possible.
Broadening the Base
But he and other experts expressed uncertainty as to whether Rovio will remain a leader in the volatile game market, a market that wasn't so friendly to "Candy Crush" creator King Digital Entertainment, whose stock has sagged since it went public three years ago.
"It's a competitive industry, and it's difficult to earn high profits in a competitive industry," said Jay Ritter, a professor of business at the University of Florida, noting that Zynga, another popular game company, also tanked in the stock market after going public in 2011.
A recent analysis by the financial publication Barron's detailed the checkered financial record of the industry: "Stocks of mobile game companies such as Zynga and Gumi Inc. are more than 60 percent below their initial offering prices. Netmarble Games Corp., South Korea's biggest listing in seven years, has declined 17 percent only a few months after it started trading this May. King Digital Entertainment, the company behind Candy Crush Saga, went public in 2014 but was acquired by Activision Blizzard two years later for a figure 20 percent below the IPO price."
Mobile game-makers "face steep challenges to sustain the revenue from existing blockbusters while continuing to develop successful new games," according to the Barron's analysis. "In a competitive market with thousands of new games emerging every month, this is not an easy task."
Mr. Ritter said Rovio may go public in part to diversify its shareholder base. Right now almost 70 percent of the company is owned by co-founder Niklas Hed's uncle, Kaj Hed. But the company might have trouble getting a valuation as high as $2 billion.
"They need to have a story, be able to convince investors that they have new products that will generate additional revenue and products," Mr. Ritter said.
Kathleen Smith, a principal at Renaissance Capital, an IPO exchange traded fund manager, said she anticipates a valuation of greater than $1 billion, but said $2 billion was a stretch for such a fickle industry.
"There's going to be a high degree of concern that these games can be very hit-driven," she said.
Business columnist Erik Sherman noted the riskiness of the industry as well, expressing skepticism about Rovio's IPO success.
"A business that depends on popular culture and taste will find planning a strategic future to be a challenge," Mr. Sherman wrote in an article for Inc.com. "Maybe things will take off for Rovio, with the money from an IPO helping fuel new development. Maybe not."
If Rovio reaches the $1 billion valuation mark, Ms. Smith said, it will be among the top percentile of valuations this year. So far in 2017, only 34 of 91 IPO deals have had valuations of $1 billion or more. Seventeen have reached $2 billion or more, she said.
If the valuation goes as well, "it'll be good news for an industry that hasn't had a lot of good news," Mr. Gordon said.
The company will probably point to its movie and merchandise success -- successes that King and Zynga didn't have -- as it seeks to pique investor interest. Ms. Smith noted that Rovio's widespread name recognition and multiple channels of revenue will help it in the marketplace.
"I think the key for them is to expand beyond 'Angry Birds,'" she said. "But then again, they've done so well already."
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Image credit: Rovia/Angry Birds via Apple iTunes.