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Billion Dollar Unicorns: Kabam Struggles to Stay Alive

Posted on Thursday, Jan 26th 2017

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According to a Newzoo report, the total gaming market worldwide was estimated to grow 8.5% over the year to $99.6 billion in revenues in 2016. This is also the first year when mobile gaming will account for a bigger share than PC games. Mobile gaming was estimated to bring in $36.9 billion in revenues, growing 21.3% over the year. The global gaming market is expected to grow 6.6% annually over the next three years to be worth $118.6 billion in 2019 with mobile gaming accounting for $52.5 billion of these revenues.

Kabam’s Offerings

Kabam was founded in 2006 by Kevin Chou, Michael Li, and Holly Liu in San Francisco to create a social sports community leveraging Facebook. While Kabam began on Facebook, it soon diversified onto other online platforms including mobile devices and Web platforms to become a social gaming company of its own standing.

Kabam operates on a freemium model by allowing users to play their games for free and by earning revenues through sale of premium content and virtual goods. The company managed to publish some very popular titles in the gaming community. It is best known for its strategy game Kingdoms of Camelot. Besides developing its own games, Kabam is also a publisher for third party game developers. It has also tied up with Hollywood studios such as Disney, Universal, and Warner Brothers to deliver mobile games based on franchises including Marvel, The Hobbit, and Fast & Furious.

Kabam does not disclose its revenues, but it claims to have four titles that have grossed more than $100 million in their lifetime besides the popular Kingdoms of Camelot, which has already grossed more than $250 million. The company claims to have been profitable since 2012. Other market reports suggest that Kabam’s revenues grew from $180 million in 2012 to $360 million in 2013 and to $400 million in 2014.

Kabam has been venture funded so far with $245 million raised from investors including Alibaba, Intel Capital, Redpoint Ventures, Canaan Partners, SK Telecom Ventures, Performance Equity Management, Pinnacle Ventures, and Betfair. It last raised funds in July 2014 when it secured $120 million from Alibaba at a valuation of over a billion dollars, growing from 2013 valuation of $700 million. More recent valuation is not known, but some analysts believe that it may no longer be a billion dollar company.

Kabam’s Recent Worries

For quite some time, Kabam debated with the idea of going public. But recent years of financial struggle have forced it to quit the idea. Kabam’s idea of adopting titles like The Lord of the Rings and The Hunger Games never brought in much money as Kabam had to share revenues with the right holders. Revenues for 2014 grew only 7% over the year compared with 100% in earlier years. While the revenue number of $400 million for the year 2014 was still substantial, it fell short of earlier estimated revenues of $500 million.

In 2015, Kabam began to lay off its employees. Like other newly rich companies, Kabam had trouble managing spend. Even though funds were scarce, it was incurring frivolous spending such as the $18 million spend for naming rights of the Cal-Berkeley football field.

The troubles continued in 2016 when it began the year by laying off 8% of its staff. With other gaming companies like Zynga and King.com crashing, the expectations of an IPO were no longer reasonable. Kabam had to change gears. It realized that its strength lay in massively multi-player games (MMOs) and decided to focus on those games instead. It has also become more prudent in game development by investing in fewer, but hopefully better titles. Finally, instead of allowing each studio to use their own platform, Kabam now insists on using a common tech stack across all studios.

These moves have helped Kabam still remain in business. Rumors suggest that in October 2016 Kabam received a bid of $800 million for its Vancouver studio. The Vancouver studio was Kabam’s best studio – it had developed Marvel Contest of Champions. Kabam’s Marvel game has grossed more than $400 million since its launch in 2014. The Vancouver studio is also working on the Transformers: Forged to Fight game scheduled for release this spring.

Till recently, Kabam had managed to hold on to its independence. But recent news suggests that Kabam may have found another buyer for some of its assets. According to market reports, Kabam has agreed to sell the bulk of its assets, including the Vancouver studio and the marketing and customer support teams, to South Korea’s Netmarble for an undisclosed sum. The deal is expected to be closed later this quarter and will give Netmarble full control over the Vancouver studio. Some believe that the deal is still in the range of $700-$800 million. Kabam is expected to combine its other three studios located in Los Angeles, San Francisco and Beijing into a new entity to be sold off after the completion of the Netmarble deal. Unfortunately, these studios aren’t known to deliver strong games and Kabam will find a sale difficult to make.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

Photo Credit: Official GDC/Flickr.com

This segment is a part in the series : Billion Dollar Unicorns


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