Originally founded in 2002 as Gamelion, Huuuge Games was one of the early movers into the mobile and handheld gaming space. After being sold in 2007, the company was reacquired by its founder, Anton Gauffin, in 2014 and rebranded as Huuuge Games.

Reinvigorated by the return of its charismatic founder and his vision of “making mobile games social,” the company went on to launch two hugely successful slots games back-to-back: Huuuge Casino (over $882M in lifetime revenue) and Billionaire Casino (over $437M in lifetime revenue).

This success led to a series of venture funding rounds and culminated in the company’s $1.1B IPO on Poland's Warsaw Stock Exchange in early 2021. The IPO helped the company raise $150M to bolster its balance sheet and handsomely rewarded its founding team and investors by allowing them to sell $292M in shares in the process. (They had raised $57M in venture funding to date.) Investors were also excited about the company’s various growth initiatives, and the company traded at a healthy mid-teens EBITDA multiple.

Fast forward to today, the company’s market capitalization of $242M ($117M excluding cash) stands at a fraction of what the company was valued at during its IPO. Despite having $125M in cash and no debt, the company currently trades at only 1.7 times the EBITDA. This begs the question: What happened?

From IPO to Today

At the time of the IPO, Huuuge’s billion-dollar valuation came with two key expectations from the market:

1. Continuing growth in the company’s social casino portfolio, driven by live ops excellence in Huuuge Casino and Billionaire Casino (which accounted for 94% of the company's 2020 revenue), and leveraging the company’s genre expertise to expand beyond these core titles. Pre-ATT, social casino was perceived as a growth category, with the market almost doubling between 2017 and 2020.
2. Diversification into other genres, like casual games, through the company’s publishing arm, M&A, and internal game development efforts.

The first big hurdle the company encountered was Apple’s ATT changes in April 2021, which disrupted user acquisition across the mobile gaming industry. Social casino games, given their reliance on UA to attract and retarget high-spending players (especially on iOS), were particularly hard hit, with key social casino studios reporting flatlining or declining revenue.

Huuuge was no exception, with both of its top social casino games contracting year-over-year. More importantly, its active user base was shrinking even prior to the ATT changes, painting a worrisome picture of the longevity of its core offerings.

The company’s attempts to diversify away from its two social casino hits also fell short. Heading into the IPO, the company drummed up excitement around a promising match-3 puzzle hybrid called Traffic Puzzle, which came through Huuuge’s publishing division.

Huuuge went on to acquire the game from developer Picadilla Games for $39M in 2021. Traffic Puzzle was expected to be the third core franchise alongside the two social casino games, but a year after the acquisition, Huuuge announced it was sunsetting the game. One can see from the graph below that a couple of attempts at scaling the game did not pan out.

Since then, the company’s publishing and M&A efforts have been muted. Similarly, its internal game development efforts have not yet created another mass-market, scalable game.

In late 2022, the company started shifting its focus away from growth. It announced it was entering “harvesting mode” on its flagship social casino games and emphasized profitability as the company’s key objective. There was also a change of guard, with Anton Gauffin stepping up to chairman and the company’s COO and Co-founder Wojciech Wronowski taking over as CEO.

Wronowski, who has been with the company for almost two decades, worked his way up from QA, through production and product management, and into the top job. This promotion also elevated Erik Duindam, who previously built and sold an adtech startup to Huuuge, into the COO position. On paper, this team provided a highly capable product and marketing leadership duo to help guide Huuuge through a challenging period.

One of the company’s key achievements under the new leadership was slowing down the decline of Huuuge Casino and Billionaire Casino. However, the games still rely on a shrinking base of players, and the titles continue to be monetized more heavily. Still, the longevity of these two titles is incredibly impressive, and they continue to drive strong cash flows for the company to reinvest elsewhere.

So far, the firm’s primary use of cash flows has been share buybacks, which have become an increasingly attractive option as its stock price continues to decline (hence the share price being lower than a corresponding decrease in its market capitalization).

Despite returning $240M to shareholders since 2022, the company is still armed with a $125M war chest. The challenge for management is how they should deploy this cash to revitalize the company.

What’s Next?

The key source of public market angst is the lack of a compelling equity story around the business. The company is sitting on two highly profitable but slowly declining social casino games, with no major launches on the horizon.

Although management has reiterated its plans to use its $125M war chest for M&A, the company has not pulled the trigger on a full acquisition since 2021, and the company’s current trading multiple makes almost any deal involving equity dilutive, limiting the company to smaller deals unless it takes on leverage.

Pursuing growth through M&A is a road full of potholes, but the right deals can provide much-needed growth and diversification away from Huuuge’s aging social casino games. A recent example of a successful “small deal with an outsized impact” would be MTG’s 70% acquisition of Snowprint Studios for about $40M in 2023 (based on our estimates). MTG acquired a young studio with a promising game in a genre it was familiar with (midcore) and provided the studio with the resources and tools to scale its games. In turn, Snowprint’s Warhammer 40,000: Tacticus has delivered much needed organic growth to MTG’s slowing strategy & simulation segment.

The market also seems to value Huuuge’s social casino business as though it has only a few remaining years of cash flow. As we’ve seen with SciPlay (one of Huuuge’s main competitors), a focused post-IDFA UA and live ops strategy on social casino games could lead to a healthy and highly profitable business that retains users for a very long time. (We recently chatted with SciPlay’s Chief Strategy Officer on our podcast here.)

Huuuge management’s renewed focus on the segment, coupled with low-hanging fruit like expanding its direct-to-consumer efforts give us hope of a stabilization. (YTD 2024 D2C web stores are at 11% of revenue versus a competitor like Playtika channeling more than 50% of its social casino revenue off-platform.) The recent streamlining of operations also provides additional cash to explore potential M&A opportunities, or reinvest in the company’s core business.

If the company’s shares continue to slide, it wouldn’t be surprising if Huuuge were to explore another sale process to realize value for its shareholders. (The firm previously ran a sale in late 2022.) If no strategic buyers emerge at the right price, one potential path is for Anton Gauffin (36% of shares outstanding) and Raine Group (15%) to take the company private with help from another investor, perhaps a private equity firm.

Given the company trades at a 61% cash flow yield (excluding cash), the logic behind the deal is easy to understand, and going private can give management the time and space it needs to rebuild the company without having to manage quarterly investor expectations. It would also be a win for minority shareholders, who could see an immediate uptick in their investments.

Ultimately, whether as a public or private company, organically or inorganically, Huuuge must find a way to diversify away from its two legacy social casino games.

Conclusion

In a little over a decade since its founder’s return to the company, Huuuge has gone through the full company lifecycle of launch, growth, maturity, and decline.

While the market is valuing the company as if it is in terminal decline, the profits generated from its core social casino games, along with its $125M war chest, give Huuuge a chance to rewrite the narrative.

In particular, finding the right deal can provide immediate growth and diversification for the company. The renewed focus on its core social casino portfolio can also right the ship on the games. We’re hopeful this board and management team, which led the company through an incredibly successful reinvention of its business just over a decade ago, can chart another new course for the business.

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