LONDON (Reuters Breakingviews) - The maker of “Angry Birds” is prepping a dubious stock market catapult. Investors may relearn a crucial lesson from physics and addictive mobile games: what goes up tends to come down.
Rovio on Tuesday said it intends to launch an initial public offering in Helsinki. This will combine a sale by Trema International – the 69 percent shareholder owned by the uncle of company co-founder Niklas Hed, according to Reuters – and raise around 30 million euros of new money to fund growth. The Finnish company says the listing will also enable it to use shares as an acquisition currency in an expected round of industry consolidation.
Investors are eager for exposure to the fast-growing mobile games sector, where “Angry Birds” remains one the best-known names. What’s questionable is whether the game – where multi-coloured birds try to save their eggs from inexplicably green-coloured enemy pigs – merits the mooted $2 billion valuation reported by Reuters.
Rovio earned revenue of 192 million euros last year, about $230 million at current exchange rates. That implies a valuation of almost nine times historical sales. Rivals King Digital Entertainment and Supercell were valued at three and four times revenue, respectively, when they were sold in recent years – even after factoring in a control premium.
True, Rovio’s revenue soared by 94 percent in the first half of the year. However, it would need to expand its top line by more than 142 percent for multiples to fall into line with peers.
Given Rovio’s dependence on “Angry Birds”, that seems unlikely. A slowdown in 2015 sales contributed to an operating loss that year, which the company managed to turn around in 2016 partly through a movie based on the game. Yet it’s questionable whether the franchise has legs to maintain a long-term hold on flighty mobile consumers.
King Digital provides a cautionary tale. Shares in the maker of “Candy Crush Saga” fell more than 15 percent on its first day of trading in 2014 and it was eventually sold to games giant Activision Blizzard for less than its initial listing price. Finnish peer Supercell, which created “Clash of Clans”, is now owned by Chinese web giant Tencent.
Bigger companies have the wherewithal to cope with the ups and downs of individual games. Unless Rovio can show investors it’s more than just a clutch of squawking birds, a sale might be the better route to a high score.
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