Top News

#1: Sega Rescues Rovio from Angry Birds Stagnation  

After talks with Israeli mobile giant Playtika fell through last month, Angry Birds developer Rovio agreed to sell to Sega instead. This deal came out of left field, with the WSJ reporting on the talks between insiders on April 14th, just one business day before the deal closed. This €706/$776 million acquisition is the games industry’s second largest of the year, behind Savvy Games Group’s $4.9 billion purchase of Scopely earlier this month. We previously discussed potential synergies Sega may achieve in our Naavik Digest piece, “Why Sega and Rovio’s Acquisition Deal Makes Sense.” 

But before we dive deeper into Rovio’s financials, let’s put the deal in context. The sale of Rovio is just the latest in a string of major video game mergers and acquisitions as the industry’s largest publishers have increasingly started consolidating. Starting with Activision Blizzard’s $5.9 billion acquisition of King in 2015, which at the time was the largest in the industry’s history, mobile gaming studios have been scooped up to allow publishers to expand their market share in the fastest growing segment of the market. The growth of the freemium model has broadened gaming’s appeal to a more casual demographic, and the accessibility of smartphones has made mobile games more inclusive. The top 10 mobile acquisitions have all taken place since 2015, and are ranked below by deal value.

Company Filings
Source: Company Filings

The cash offer for Rovio represents a 19% premium to the company’s last closing price of €9.25 on Nasdaq Helsinki, where it has traded since its IPO in September 2017. The company debuted at an approximately €1 billion valuation, after being oversubscribed multiple times in a highly anticipated IPO. Shares priced at the highest end of the preliminary price range of €10.25 to €11.50. The IPO only raised €30 million for the company but allowed Rovio to make its capital markets debut, 14 years after its inception. 

Much of the excitement around Rovio at this time was due to the Angry Birds movie, which was a commercial success with a $352 million box office against a $70 million budget, and the massive popularity of the games themselves, which were the most downloaded freemium game series in history. Around this time Rovio also transitioned from a “games only” to a “games-first” model, and many thought the success of the film could lead to other revenue opportunities within entertainment.

The reported deal premium is somewhat misleading, as Rovio stock started increasing after Playtika approached the company as a potential suitor on January 19th. At that time, Playtika’s offer of €9.05 per share represented a 55% premium, given Rovio was trading near two-year lows at just €5.82. The stock continued upwards after Rovio announced a strategic review of the business on February 6th, and began to talk to other interested parties. 

But even at such a premium, which is sizable given the current business environment, Rovio rebuffed Playtika in March, continuing talks to sell itself behind the scenes. The last-minute WSJ report prior to the deal’s close said that the sale to Sega would be for about $1 billion (€910 million), which made sense given the deal Rovio turned down a month prior. 

At just 2% higher than Playtika’s offer, it is clear that Rovio was unable to convince any other parties, including Sega, that Playtika fundamentally undervalued its business. Furthermore, there do not appear to be any sweeteners in the Sega deal, as Sega’s CEO Haruki Satomi made it clear that Rovio would lose much of its autonomy as it starts developing IP around Sonic the Hedgehog and other franchises. The question then becomes: why is Rovio worth nearly 30% less than its IPO six years ago?

In 2009, Rovio was bordering on bankruptcy. Its previous 51 games were mostly developed on a work-for-hire basis or via publishing contracts. None of this work was particularly lucrative, though, and following the effects of the Global Financial Crisis, which resulted in development work drying up, Rovio laid off most of its staff, leaving it with just 12 employees.. The remaining team brainstormed ways to save the company through their own original IP, while simultaneously capitalizing on the massive success of the iPhone and Apple’s newly launched direct-to-consumer app marketplace. 

This resulted in the release of Angry Birds on the App Store in December 2009. The game was a hit in Nordic countries and a handful of other smaller markets, but it did not garner mainstream appeal until Apple featured it in the U.K. App Store in February 2010. This helped the game’s popularity explode, and Angry Birds quickly topped the charts in most countries, including the lucrative U.S. market. Angry Birds was followed up with a number of spin-offs and eventually a direct sequel in 2015.

The launch of Angry Birds 2 saw revenues increase rapidly for the entire franchise, but July and August 2017 ended up representing the high point for Rovio’s games financially. The below chart, which tracks revenue from game sales and microtransactions, shows that the two months before the IPO were the highest level for Rovio revenue until 2021, which only slightly inched out these months. Over the entire period from IPO to today, microtransaction revenue from the Angry Birds franchise has been roughly flat.


Angry Birds has existed as a brand since the dawn of the App Store. But like all entertainment brands, excitement and audience appeal eventually fizzle out. The series has had 21 games released over a 14-year span, though success has been concentrated in a select few titles. Furthermore, Rovio has only developed a handful of other games during this time, none of which have even remotely achieved the success of Angry Birds. 

The creative spark that resulted in the original Angry Birds games has remained unmatched at Rovio. The company has tried to innovate beyond Angry Birds with new IP, but as of today that franchise is the only one that continues to receive regular support. For example, Rovio’s 2019 puzzle game Sugar Blast has not received any updates since 2021, despite the game following a live service model centered around seasonal events. 

Upcoming|In developments
Source: Wikipedia

As for the development of other media, which was a main selling point around the IPO, there have been about a dozen television series since 2013 (all Angry Birds related), as well as a movie sequel released in 2019. The Angry Birds Movie 2 was much less successful than its predecessor, grossing $153 million against a $65 million budget. The television series have not been particularly noteworthy, either. The most recent is a show called Angry Birds: Summer Madness, exclusive to Netflix, that has a 5.7 IMDb rating on less than 800 reviews. 

Consumer fatigue has not been the only factor affecting Angry Birds’ popularity. In early 2019, all of Rovio’s games released before 2014 were removed from iOS and Google Play stores without much explanation. Many believe Rovio either lost or did not renew the licenses to Angry Birds Rio and Star Wars, but the removal of the original Angry Birds was a true head scratcher. This ostracized many of Rovio’s core players, turning them off from the franchise entirely. 

Rovio’s EBITDA multiple at IPO time was around 30x, using 2017’s full year earnings. The company failed to grow into its multiple, as 2022’s €39 million EBITDA was just 15% higher than 2017.  Furthermore, earnings have been in decline for two consecutive years, after the pandemic banner year. Top-line revenues have followed a similar trend and are roughly flat since 2017.

Bar Graph
Source: Koyfin

Even if the valuation is rich (18x 2022 EBITDA), the deal makes a lot of sense for Sega. For one, Sega fully intends on turning Rovio into a core in-house development studio. The mechanics of Sonic games have translated well to mobile. Endless runner game Sonic Dash, which was developed by Sega’s Hardlight division, has garnered over 500 million downloads on Android and iOS since 2013. The entire Sonic franchise, which also includes games like Sonic Runners and Sonic Speed Battle, has been downloaded over 1.5 billion times on mobile. Rovio will be able to increase Sega’s output, both for Sonic and potentially for other franchises like Super Monkey Ball and Phantasy Star. 

Before any deal talks took place, Rovio was trading at 11x LTM EBITDA, as expectations called for low to zero growth. Sega will have to prove that the acquisition will boost its output, particularly as its games for Western audiences haven’t fared as well as those for domestic gamers in Japan. In addition to Sonic, potential franchises that can make more inroads on mobile include IP like Super Monkey Ball and Phantasy Star. 

Secondly, Rovio will aid Sega with its multimedia expansion. As reported in the press release, Sega will receive insights on exposing its fanbase to “movies, anime, and merchandising” based on its IP. The Sonic movies have been successful, but there are many other ways the franchise can be monetized. For example, one creative outlet for Angry Birds has been in mini-golf, which began as a venue in the American Dream Mall in 2020. These benefits may be reciprocal as well. Rovio’s licensing revenue makes up a very small portion of the company, and Sega may be able to use its warchest to unlock new opportunities. Sega’s Pachinko business saw a resurgence last year as profit soared after previously successful themes were revived, and Angry Birds could continue this upswing.

The acquisition also comes with Rovio’s expertise in game development technology. Beacon is Rovio’s live-service cloud platform used by its in-house teams, providing them with tools to update games and implement events. This gaming backend will likely be used across Sega’s active mobile portfolio, and for all future games as well. Based on Rovio’s website, it also appears the company envisioned selling this product to other developers, a route Sega may choose to take. 

In any case, Sega has already proven that Sonic excels on mobile, and adding resources to further these ambitions is smart. Mobile may turn Sega into a more profitable company as well, as adding more software to its portfolio could increase profit margins. In its most recent quarter, the company had $2.1 billion in revenue and $293 million in operating profits, for an operating margin of 14%. 

#2: The State of Diablo & What It Means for Activision Blizzard

Source: Blizzard

On April 17th, the Diablo Twitter account announced that Diablo IV had gone gold, indicating that main development is finished and the game is ready to be printed on a physical disc. While the term has lost some of its meaning in the live service era, it is still a symbolic moment for millions of Diablo fans, who have waited over 11 years for a new mainline installment. The game is ready to go for its launch on June 6th when it will simultaneously release on Windows, PS4, PS5, Xbox One, and Xbox Series X/S. 

Like its predecessor, Diablo IV has made ample use of beta testing. Those who pre-purchased the game had three days of early access to the open beta starting March 17th, with access opening up to everyone the following weekend. Last Thursday, Blizzard announced a surprise third Diablo IV beta dubbed the “Server Slam,” where players are encouraged to test the limits of the game’s servers ahead of the official launch.

Between these beta tests and open dialogue between the development team (headed by Diablo and WoW veteran Luis Barriga) and the player base, it’s clear Blizzard is trying to ensure a positive experience for players prior to the launch. The team also assured players that the game would not feature “pay-to-win” microtransactions like in Diablo Immortal, the mobile Diablo spinoff that released last year. Instead, there will be a cosmetics shop, which is only focused on character aesthetics, and a premium Battle Pass, which will reward players with perks and items that also do not affect gameplay. 

Diablo Immortal has become a very sensitive subject for Blizzard. The backlash began the moment the game was revealed by Game Director Wyatt Cheng at Blizzcon 2018. Hardcore Diablo fans were upset when Blizzard didn’t reveal a new mainline Diablo entry (Diablo IV wouldn’t be announced until the following year) and further ostracized by Blizzard shifting its focus to mobile gaming, which typically necessitates a freemium business model with microtransactions that confer advantages. During the Q&A session, one fan famously asked if the announcement was “an out-of-season April Fools joke.” The game was quickly review bombed and today remains as one of the lowest-rated mobile games on Metacritic by user score.

Diablo Immortal
Source: Metacritic

Diablo Immortal is meant to cater to a more casual demographic than the core franchise. Diablo IV is launching a year after Immortal, indicating that Blizzard does not see market cannibalization as an issue. Furthermore, each game’s season structure appeals to a different type of player. Seasons have been a staple of the series since Diablo II, when they were known as Ladders. In Immortal, seasons last for one month, incentivizing players to open their app every day and work towards the rewards. In Diablo III and now in Diablo IV, seasons are approximately three months long, giving players more time to progress rather than relying on a mobile “FOMO” model.    

Since its launch on June 2nd last year, Diablo Immortal has been downloaded around 16.5 million times, split nearly evenly between iOS and Android. These downloads were very front loaded, with 42% of the cumulative player base installing the game in June, and a further 19% in July. This was due to an effective ad campaign by Blizzard leading up to the game’s launch. Note that the below figure only considers the international version of Diablo Immortal. The game was co-developed by NetEase, and also has a localized Chinese version that launched a month after the non-China version. 

Revenue was also strong out of the gate, but has since trailed off. The non-China version had $43 million in IAP during the launch month and $45 million in July, over 40% of the total to date. The last two months, February and March 2023, have seen monthly revenue decline below $10 million. For all of 2022, the Chinese version of the game saw about $123 million in revenue, while the Blizzard-published version saw $180 million. Blizzard does not disclose its revenue split with NetEase, but for the international version NetEase takes a cut as co-developer and in China takes a presumably larger share given the company also serves as the game’s domestic publisher. 

Bar Graph

In any case, the game enhanced Blizzard segment revenue in 2022, which grew 10% year over year to $2 billion. But Diablo Immortal will have a much lower impact in 2023. A minority of Immortal players will also migrate to Diablo IV, though as previously stated, the games cater to different demographics. Diablo Immortal’s revenue last year was less than one-tenth of King’s, which is the main mobile breadwinner for Activision Blizzard as a whole.

Segment revenues

We can expect Diablo IV to have a much more sizable impact on results. Diablo III launched in May 2012, and through the end of the year sold 12 million units. The base digital and DVD version sold for $60, while the collector’s edition sold for $100. Around this time, video game collector’s editions ranged from 5% to 15% of unit sales. At the midpoint of 10%, this would mean Activision Blizzard made $120 million from this version and $648 million from the base version, for a total of $768 million. Given that the company closed 2012 with $4.86 billion in revenue (a record at the time), Diablo III was responsible for 16% of the publisher’s total top-line. 

The standard edition of Diablo IV will retail for $70, while the Digital Deluxe and Ultimate editions will cost $90 and $100 respectively. Furthermore, 2023 will have two full seasons and one month of Season 3. The season pass will cost $10, adding $30 in incremental unit revenue for each user who purchases all three. Diablo III also had neither microtransactions nor season passes at launch. The in-game premium currency “platinum” was only added in 2015 via a patch

The conclusion of the final new season of Diablo III will coincide with the launch of the new game. Seasons after Season 29 will repeat content from prior ones, meaning the diehard Diablo fans who want continuous fresh experiences will be purchasers at launch. Blizzard did not reveal how many players participated in the open beta, but it did confirm 61.6 million hours played.

Diablo Statistics

There is a chance we do not find out all the details of the game’s financial impact, as Microsoft is still targeting a June 2023 closure date for its ATVI acquisition. Microsoft has said Activision Blizzard would become a subdivision of Microsoft Gaming, but it is unclear what this means for financial reporting. Still, it is possible the deal won’t close by the summer due to ongoing FTC scrutiny. That means we may get FY 2023 Q2 earnings in early August, which would cover April through June results. 

While the impact of Diablo III on company performance petered out after the game’s only expansion pack, Reaper of Souls, launched in 2014, Diablo IV has a long runway ahead of it. With or without Microsoft, this game could become the highest-selling RPG of all time. Diablo III and Reaper of Souls combined for 30 million unit sales, barely trailing second-place Skyrim and 2.5 million copies shy of Pokémon Red and Blue, which occupies the top spot. Many hardcore players and beta testers have already preordered Diablo IV, and while reviews won’t be out until June, we can expect unit sales to have a strong runway.

Top Movers

Weekly Gainers
Source: Entrackr
  • For the week ending April 21st, 2023: the average return for gaming companies tracked by Naavik with a market capitalization exceeding $500 million was -0.19%. The S&P 500 returned -0.10% and the Nasdaq-100 returned -0.94%.
  • For a third consecutive week, IGG led gains among video game companies. This brings IGG’s year-to-date performance to 101.4%, by far the most among its peers, with Wemade trailing in second with a 65.5% gain. After challenging performance in 2022, IGG has surged due to the recent success of its zombie survival game Doomsday: Last Survivors, which was published last September. The game’s revenue has increased every week since February 12th, most likely due to the popularity of The Last of Us series on Netflix. 
  • Rovio rose 19.2% after Sega announced it would be acquiring the Finnish mobile developer last Monday in an all-cash deal. This news contributed to Ubisoft’s 8.3% rise last week, as the company has been seeking a takeover for months, and is considered a likely target due to its extensive back catalog and depressed valuation. 
  • Roblox fell by -10.9% after reporting its March 2023 key metrics.. DAUs were 66.2 million, up 26% year-over-year but down -1.6% from February. Estimated average bookings per daily active user (ABPDAU) were roughly flat from a year prior. This metric has been a pain point recently as Roblox has found difficulty monetizing its growing user base in a challenging economy. The company also said it will stop releasing these monthly key metrics reports. While this will remove these disclosures as a source of volatility, the lack of transparency may increase volatility around quarterly earnings. 

Most Notable Strategic Investments

Source: Push Square
  • Sega Sammy Holdings purchased Rovio Entertainment in a €706 million all-cash deal. The acquisition will enhance Sega’s mobile development capabilities, as it seeks to create new titles around its popular IP such as Sonic the Hedgehog. The deal is much less than the $1 billion WSJ initially reported Rovio could fetch, but is still over 60% higher than the company’s valuation in mid January, before its initial talks with Playtika were picked up on. (Link)
  • Sony entered into an agreement to acquire Firewalk Studios from its current parent ProbablyMonsters, an independent AAA game company in Bellevue, Washington. Firewalk will become the 20th studio under the PlayStation Studios umbrella and will be used to bolster Sony’s live service offerings. The studio is also currently developing an unnamed original AAA multiplayer game for the PS5 and PC. Terms of the deal were undisclosed. (Link)
  • Epic Games acquired AQUIRIS, the Brazilian studio behind the Horizon Chase series and game-creation sandbox Wonderbox. AQUIRIS will become Epic Games Brasil, the 11th regional development studio under the Epic umbrella. In addition to acquiring its existing games, which utilize the Unreal Engine, Epic plans on having the studio create original content for Fortnite. The purchase comes just over a year after Epic invested an undisclosed sum in AQUIRIS and entered a multi-game publishing agreement for “the next 15 years.” (Link)
  • Dovetail Games was acquired by Focus Entertainment for an undisclosed sum, though the companies said the amount was “consistent with the current market multiples.” Dovetail Games are the developers and publishers of numerous simulation games, including the Steamworks title Train Simulator. Dovetail’s portfolio complements Focus Entertainment’s simulation games including Cities XL, which it acquired from Monte Cristo in 2010 during a bankruptcy sale. Focus has also been on an acquisition spree since June 2020, acquiring five other studios over the period. (Link

Most Notable Venture Financings

  • Swedish NFT game developer GOALS raised $20 million in a Series A round led by Reddit co-founder Alexis Ohanian’s VC firm Seven Seven Six. Goals was founded in 2021 by Andreas Thorstensson, who is known for his tenure in esports as managing director of SK Gaming from 2001 to 2009. GOALS, which is currently in its “pre-alpha” stage, is a free-to-play, play-to-earn esports game that aims to compete with FIFA and eFootball. The game aims to launch with cross-play compatibility and minimal latency, and will primarily focus on competition. (Link)
  • TreesPlease Games, a studio founded in 2019, emerged from stealth and raised $8 million in seed funding. The studio also unveiled its merge puzzle game Longleaf Valley on the Google Play and iOS app stores. TreesPlease partners with Eden Reforestation Projects to plant real trees as players progress within the app, earning “tree tokens” after completing enough quests. The company claims over 300,000 trees have been planted since the soft launch in August 2021. (Link)
  • Virtual Reality game studio Vinci Games raised $5.1 million in seed funding led by Makers Fund. The funding will be used to support the development of Blacktop Hoops, a competitive VR basketball game in early access on Steam and Oculus Quest. The game has seen favorable player reception so far, with 91% of the 488 user reviews on Steam being positive. Vinci Games is led by CEO Nathaniel Ventura, a former program manager at Oculus, and CTO Maciej Szcześnik, who was a lead game designer for The Witcher series. (Link)

Other News

  • Activision and Savvy Games’ ESL FACEIT Group have signed a two-year esports agreement, which will see Call of Duty: Mobile become part of the Snapdragon Pro Series. The tournament series, which is sponsored by Samsung Galaxy, hosts tournaments for seven mobile games in every major region. Competitions for the newly added game will take place in two seasons per year over the next two years, with $1.5 million in prize money up for grabs in 2023. The Snapdragon Pro Series has served as a venue for mobile game publishers to outsource their esports offerings while focusing on game development and marketing. (Link)
  • Capcom and Niantic’s mobile Monster Hunter collaboration was officially unveiled under the title Monster Hunter Now. The game’s beta test began on April 25th on Android and iOS with a full release planned this September. Similar to Niantic’s hit title Pokémon Go, Monster Hunter Now tasks players with finding monsters in the real world with their phones as they walk around. Unlike the franchise’s core games, where battles can take half an hour or more, the app caps battle length at 75 seconds. The game will be free to play and supported by in-app purchases. (Link)
  • Joseph Staten has joined Netflix Games as Creative Director. Staten is known for his tenure at Bungie and 343 Studios, where he was the lead writer of the original Halo trilogy, and then as Head of Creative for Halo Infinite. At Netflix, he will oversee the creation of a new multi-platform AAA title based on original IP. Since the creation of Netflix Games in 2021, the company has published over 50 mobile games bundled as part of its subscription platform, after acquiring six studios and developing multiple games in-house. A multi-platform AAA game marks a departure from Netflix’s mobile strategy and showcases its ambitions to become a leading premium game industry player. (Link)

A big thanks to Mario Stefanidis, CFA for writing this update! If Naavik can be of help as you build or fund games, please reach out.

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