2012 IPO Watch: Rovio and Zynga
by Mike Kapsch, Investment U Research
Friday, December 9, 2011
Last year, people spent $67 billion buying video game hardware and games. According to market research firm Gartner, this market will likely earn another $7 billion in 2012.
But while traditional video games – like the ones you’d buy at a store or online – still dominate the gaming industry, a revolution of sorts is taking place…
Social and mobile gaming platforms are exploding on the scene faster than anyone ever expected.
In 2009 alone, social gaming revenue grew 116.4 percent to $1.4 billion. By 2015, social gaming will likely be a $5-billion market all on its own. Gartner’s Tuong Nguyen says mobile gaming will probably grow “even faster.”
For investors, this kind of growth shouldn’t be ignored. And two firms in particular are set to dominate these specialized sectors over the next 12 months… and beyond.
In fact, one is just a few weeks away from debuting on the New York Stock Exchange.
Zynga: The Biggest Gaming Company You’ve Likely Never Heard Of
While you’ll likely hear more about Facebook’s IPO in the mainstream news, Zynga is flying just under Wall Street’s radar.
And unlike other IPO’s this year such as Groupon, Pandora and Angie’s List… Zynga (and Rovio) is already slightly profitable.
In 2010, the company netted $90 million. Today, it’s arguably the most popular social game developer in the world.
You may even be familiar with such games as “FarmVille,” “Mafia Wars” and “Words with Friends.” These games have helped boost Zynga’s average monthly active users to 232 million people in 166 countries.
You can also check out Justin Dove’s article from July for even more details on the company.
Of course, as with anything, there are certainly risks to consider. For instance, Zynga relies heavily on Facebook to market its games. That’s changing though…
In fact, Zynga’s mobile business has seen a 10-fold increase in the number of daily active users from November 2010 to October 2011. In October, Zynga averaged 11.1 million daily active users on mobile devices.
Next Monday, the company will begin mass-marketing to raise money for its IPO. And it is expected to go public before the end of this year.
Yet this is just one of two IPOs to consider…
Rovio Entertainment: Getting “Angry,” Getting Paid
Finnish firm, Rovio Entertainment, was first founded in 2003. It was originally a mobile game development studio. Then the company released a game called “Angry Birds” via Facebook in 2009. And now it’s one of the most successful franchises in the world.
There’s no doubt “Angry Birds” is enjoying continued worldwide success. But, like Zynga, the franchise is looking ahead. It’s rapidly expanding in broadcast media, merchandising, publishing and services.
The biggest risk Rovio faces right now is it looks like it may be a one-hit wonder. But the same thing could’ve been said about Disney. It only started with Mickey Mouse. And now Disney is a $63 billion global entertainment powerhouse.
So if you’re willing to take a risk, look for Rovio to IPO around October of 2012.
Going Beyond Social Media
While both Zynga and Rovio found their original success on Facebook, they’re looking beyond social media. Today, most cellphones are like a portable entertainment center. And games are playing more and more of a key role. Both companies are rapidly entering this arena.
Bottom line: Rovio and Zynga already have proven business models. Their products are popular and they’re businesses are rapidly expanding. Investors shouldn’t lump them in the same category as more speculative tech or social media IPOs, such as Pandora (NYSE: P) and Groupon (Nasdaq: GRPN).
Good Investing,
Michael Kapsch
Article by Investment U
