Will Playtika Acquire Rovio?

External and Internal Forces Shaping Voodoo and Ubisoft’s Strategy

Why is Voodoo uniquely positioned to pursue blockchain gaming and are they likely to succeed? What’s next for Ubisoft and why are they underperforming? We dive into the latest game business news with Aaron Bush, Anil Das-Gupta, and your host Maria Gillies.

You can find us on YouTube, Spotify, Apple Podcasts, Google Podcasts, YouTube, our website, or anywhere else you listen to podcasts. Also, remember to shoot us any questions here.

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#1: Playtika’s Pending Bid For Rovio Is A Steal

On Thursday, Playtika, an Israeli-based mobile gaming giant, publicly announced a proposal to acquire Helsinki-based Rovio Entertainment for €9.05 per share in cash in an unsolicited bid. Rovio is best known as the creator of Angry Birds.

€9.05 per share results in a valuation of €690 million, considering that Rovio itself owns 8.26% of the outstanding shares. On Thursday, the share closed at €5.67 in Nasdaq Helsinki. Thus, Playtika's bid represents roughly a 60% premium on market capitalization. As the exchange opened on Friday, Rovio’s share shot up immediately, closing at €7.70 on Friday afternoon.

At first glance, a 60% premium is a good deal for Rovio. On closer look, analysts should consider that the market is arguably undervaluing Rovio:

Rovio's EV/Revenue with pre-announcement market capitalization is 0.8x (!) when rival companies such as Mag Interactive and Stillfront find themselves between 1.5x and 2.0x. For context, Rovio's revenue for the fiscal year 2021 was €286.2 million, with growth expected for 2022.
During Rovio's tenure as a publicly traded company, it has consistently made a profit. In the short term, profit might not be the best metric for free-to-play the business model, as companies can manipulate their EBIT by adjustments in marketing expenditure. Turning a steady profit for years, on the other hand, is a sign of stability.
Rovio wholly owns Angry Birds and related intellectual properties.

It's hard to say why the market undervalues Rovio. The company had a rocky start to the stock markets in 2017, as the stock crashed immediately after the IPO. The listing price was €11.50; the stock has been trading roughly between €5 and €7 ever since. The most ambitious growth scenarios have failed to realize, so perhaps the market doesn't consider Rovio's business as stable as the data indicates. Maybe the stock is just overlooked due to being listed in a small Nordic exchange. Be as it may, Rovio's board must be looking for a higher valuation, and considering Rovio’s €141 million cash in the bank, it won’t be in a hurry.

Playtika Data — *This strategy is par for the course in Playtika’s roadmap, which we analyzed in a Naavik Pro report on “The Future of Playtika*”.

For Playtika to successfully pull Rovio out of Nasdaq Helsinki, it needs to be able to purchase 90% of Rovio's outstanding stock. Former chairman Kaj Hed's family still owns 21.71% percent of the company through the holding companies of Kaj's children, so the family could easily block it. (Camilla Hed-Wilson's Brilliant Problems owns 7.79%, Jonathan Hed's Adventurous Ideas owns 7.79%, and Mikael Hed's Impera owns 6.13% Furthermore, Rovio founder—and Kaj Hed's nephew—Niklas Hed owns 1.65%. As you can see, this can get quite complicated).

Finally, there's more to this deal than just the numbers. To put it bluntly, Playtika's reputation in Finland is terrible. The Israeli company previously acquired two Helsinki-based studios, Reworks and Seriously. Playtika immediately seized control of both companies' flagship products, Redecor and Best Fiends. Seriously was shut down two years later. Reworks is still around, but its Helsinki operations are scaled down.

The Finnish gaming industry is famously tight-knit. Most developers who have been around for a while know someone from Seriously. As the 100-person studio abruptly closed, other studios in the Nordics hurriedly snatched the talent that suddenly became available. Having struggled for years to fill game development roles to staff all its live titles, Rovio was very active on this front. Considering the history, these fresh recruits definitely won't be ecstatic about Playtika's unsolicited bid. (Written by Miikka Ahonen, Co-founder of Lightheart Entertainment)

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#2: Weekly News Roundup

Roblox reports December results + a new CEO letter. Investors liked what they saw in Roblox’s December metrics (all year-over-year): DAUs rose 18% (to 615M), hours engaged rose 21% (to 4.7B), and bookings jumped 17-20%. Roblox also announced that this will be the last time it will announce these monthly metrics (will just stick to quarterly), and it’s hard to blame the team since investors have a tendency to overreact one way or another each month instead of taking the long-term view. Also, CEO David Baszucki just published his 2022 Year In Review (which is nothing groundbreaking but a solid reminder about what the team has focused on): layered clothing, contact imports, advancements to Roblox Studio, immersive ads, brand activations, machine learning to better detect bad actors, and more.

A new wave of layoffs. Several more companies — Unity, Microsoft, Google, Riot Games, Vox, Gamespot, etc. — have announced fresh layoffs this past week. While clearly bad news for the people involved, it sadly shouldn’t come as a shock. Capital is more expensive (due to rising interest rates), and companies are forced to adjust their budgets as growth expectations recede. The games industry and tech at large have experienced an outsized wave of cuts compared to other industries, but if there’s any silver lining it’s that unemployment rates at large (at least in the US) still hover near record lows.

Carry1st raised a $27M Series B from BITKRAFT, a16z, and Konvoy. This South African-based company got its start in 2018 as a game studio but has grown its ambitions over time. The team also now publishes exclusive 3rd party games in Africa, is growing out its payments platform, Pay1st, to help companies better transact with local currencies, manages the Carry1st Shop, a marketplace for digital goods, and is even eying the world of web3. Business seems to be clicking. Not only has Carry1st seen growth in its game business, but partnerships with Riot Games (an investor) and Call of Duty: Mobile show that Carry1st is entering the big leagues. As you can tell, there’s a lot to dig in here, and Naavik Pro will be doing a deeper dive into Carry1st this week.

Chinese game approvals accelerate. This week, it was reported that Chinese regulators have already approved 88 games in January, including several from top publishers like Tencent, NetEase, and miHoYo. This comes off the back of several additional approvals — for both domestic and import games — over the past couple months, and is a rapid departure from the nine month approval freeze that took place a year ago. It’s probably too stark to say that these regulators are loosening their iron grip on the games industry, but more openness and support is bullish for all involved. Chinese consumers will get access to new games, Chinese games companies (from the titans to startups) will have more confidence in their businesses, and international companies can hope to find some additional upside in the region, too. Of course, policies can change anytime, but it’s good to see the change of course.

Welcome to the golden age of video game adaptations. The Last of Us debuted on HBO this past week to roaring fanfare, and the show already garners a very impressive 9.4/10 on IMDb (making it a top 5 rated show ever, if it holds). Yes, the show appears special — faithful to the game, great acting, etc. — but it more so marks a big moment for video game adaptions. We’ve seen great video game-related shows prior like Arcane or Cyberpunk: Edgerunners (and other situations like The Witcher, which turbocharged video game sales of the franchise), but The Last of Us shows us what the pinnacle of live action adaptations can look like. Not all adaptations will live up to this one, but the floodgates are opening and showrunners know what it takes to succeed now more than ever before.

In Other News

💸 Funding & Acquisitions:

Playtika submitted a proposal to buy Rovio at a $750M valuation. Link
Plai Labs raised a $32M seed round led by a16z games and crypto. Link
Carry1st raised a $27M round led by Bitkraft. Link
Scenario raised $6M for its AI art engine in a round led by Play Ventures. Link

📊 Business:

Chinese game license approvals are on a roll, with 88 new games licenses this week. Link
Overwatch teams start a collective bargaining agreement against the league. Link
PlayStation Store’s top downloads of 2022. Link
US games spending fell 5% to $57B in 2022. Link
Lots of layoffs these past weeks in gaming across Microsoft, Riot, WotC, Unity, NetEase, Ubisoft, and games journalism. Link

🕹 Culture & Games:

D&D Beyond released a draft of the OGL 1.2 & announced its ambitions for Creative Commons License agreements. Link
Roblox DAUs rose to 61.5M, an 18% increase YoY. Link
Roblox also plans to launch a creator hub. Link
Stadia lives on through bluetooth support of its controllers. Link

👾 Miscellaneous Musings:

What a 14-year old partnership & breakup looks like between NetEase and Blizzard. Link
Riot cross-platform design UI challenge. Link
How a pixel art shooter achieved a million dollar launch. Link

This Week In Naavik Pro

Looking for more great games industry analysis? Check out Naavik Pro!

This past week the Naavik Pro team published:

Coverage of data.ai’s latest State of Mobile 2023 report
An analysis on Voodoo’s entry into web3
Insights on Limit Break’s new royalty tech
An updated game radar with takes on Domino Dreams and KartRider: Drift.

This upcoming week, we’re publishing an incredible tokenomics deep dive into several games (Illuvium, Crypto Unicorns, Splinterlands, and Star Atlas), a genre report on the mobile puzzle market, a deeper dive into Carry1st, discussion on MAG Interactive’s latest earnings, Otherside’s newest game experience, and Jam City’s spin-off of Plai Labs. And there’s much more coming after that!

If interested in learning more or signing up, request a demo below.

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