In their report Market Trends: Gaming Ecosystem, 2011, Gartner estimated that the video game industry will grow to $112 billion by 2015 from $67 billion in 2010 and an estimated $74 billion in 2011. But within the industry, mobile gaming will command the fastest growth by expanding its market share from 15% in 2010 to 20% in 2015. Mobile games developer Rovio is counting on this growth.
Rovio’s financial and operating metrics are not generally known. However, analysts estimate that since its launch, Angry Birds has recorded more than 600 million downloads and an estimated 6.5 million downloads Christmas Day 2011. The company is expected to have earned revenues of more than $100 million last year, compared with $10 million recorded a year ago. They expect new game launches to bring continued growth.
Rovio Turned Down Zynga
Rovio’s management is convinced of their growth potential. According to market reports, last quarter Rovio turned down a $2.25 billion acquisition proposal by social gaming leader, Zynga. Neither Zynga, nor Rovio have confirmed the reports. However, analysts believe that Rovio may have decided to stay away from Zynga because of culture differences between the two players. Besides being accused of stealing gaming ideas, Zynga also faces criticism from employees on their work-life balance. Market estimates peg Rovio’s valuation between 2 billion and 7 billion euros, (~$2.6 billion-$9.1 billion), another reason why Rovio may have declined Zynga’s offer. Needless to say, the valuation estimates are extremely frothy and will not be able to withstand scrutiny in the public market.
For now, Rovio has delayed plans for an IPO for the next two to three years. They are instead focusing on diversifying their offerings. The company is evaluating options of becoming a publisher for third-party game developers. They are also adding titles and are working to release their non-Angry Birds themed game, which is expected to be launched in the next few months. The market is also waiting for the next release of Angry Birds with a space-themed game. The release is scheduled for later this month and will not only debut on iOS, Android, Mac, and PC but will also be launched in their merchandise selection the same day.
Rovio’s International Expansion
After opening their first retail store in their home city of Helsinki, Rovio now plans to open a retail store in China, where the products are in huge demand, in the next few months. China is Rovio’s second-largest market after the U.S. Reports estimate that China would account for more than 100 million Angry Birds downloads last year. To cater to the Chinese population, Rovio also launched a Moon Festival episode on Angry Birds to coincide with the Chinese Mid-Autumn celebration. They are also customizing their merchandise for the Chinese market with products like Angry Birds–themed moon cakes.
The company believes that there is big potential in the Asian markets. Analysts believe that Rovio may be planning to list on the Hong Kong or New York stock exchanges by early next year, even though they say otherwise. I think they should stay private and sort out their business strategy, team, and execution models beyond Angry Birds first, before opening the kimono to the public investors if they want to build a sustainable company. Of course, if the idea is to maximize returns and sell the company while the bubble lasts, then now is the time!