Iron Throne: Kingdom — Another Failed Game Release By Netmarble

Summary:

Netmarble’s newly released game Iron Throne: Kingdom is a failure based on App Annie data.

While the stock did fall to a low of 123,000 KRW in August 2017, it has since recovered since April 2018 due to a timely 25%  investment in a Korean music label that is home to the K-Pop sensation BTS.

Once the failure of this new game become evident to investors, we believe that the stock will again test its all time low of 123,000 KRW.

Analysis

Our analysis of Netmarble’s April 2017 IPO was that it was “priced for perfection”.  While the Lineage 2 game releases have been near perfect in Korea and Japan, its release in the USA has been a bust and the release in China is on hold due to geopolitical tensions.

As a result, we predicted that Netmarble’s stock would fall 45% from its November 26, 2017 closing price of 188,500 KRW to around 103,378 KRW once the revenue impacts of the USA and China releases were fully understood by investors.

While the stock did fall to a low of 123,000 KRW in August 2017, it has since recovered since April 2018 due to a timely 25%  investment in a Korean music label that is home to the K-Pop sensation BTS

 

Recently, Netmarble announced a May 2018 world-wide release of another MMO game called Iron Throne: Kingdom.

Based on App Annie data, we can already tell that the game is a bust with a global annualized revenue run rate (ARR)  that will never be more that $50 Million USD.  This is a drop in the bucket for Netmarble whose 2017 revenue in the range of $2,000 Million USD.

Here are the current revenue ranks on iOS Apple Store for the Iron Throne: Kingdom:

  • USA — #177
  • Japan – #363
  • South Korea — #29

The relation between revenue and revenue rank for mobile games is a power function which we have discussed in other papers.  A top 3 revenue rank game generally translates into a ARR of $1+ Billion which was the case for Lineage II.  A top 10 game drops down severely to $ 160 ARR.

 

 

Here are the App Annie revenue rank charts for the game on iOS Apple for the USA, Japan, and South Korea.

iOS USA — revenue rank 177 on June 4, 2018

iOS Japan – revenue rank 262 on June 4, 2018


Roblox Corporation: A Slow Climb To the Top of the App Store Charts


Two days after Christmas Day 2017,  we checked out App Annie to see which paid and which free-to-play mobile game (f2p) with in-app purchases (IAP) spiked into Top 10 revenue rank.

You see Christmas Day is #1 day of the year for paid mobile game purchases and IAP for f2p games.

This is because pre-teens, teens, heck everyone, receives  app store gift cards from Gramps and Grandma.   Gamers use the gift cards THAT DAY to make game purchases from the app stores.  Not just spur of the moment purchases.  But, “wish list” purchases they had been thinking about for the past several months knowing full well they would be receiving app store gift cards for Christmas.

Our thesis is that game that spikes in revenue rank to the Top 10 on Christmas is the best game of the year.

We have been using App Annie to value mobile game startups since 2013.  Just after Christmas 2014, we noticed that the paid game “Five Nights at Freddy’s” by indie developer Scott Cawthon spiked to #10 on Christmas Day.  

We thought nothing of it at the time.  Later, in April 2015, we published an article on the game called Life Lessons From Five Nights at Freddy’s.  In November 2015, we answered the following question posed  by a mobile game developer on Quora:  What’s the best time to release an iOS game to get maximum downloads?  Our answer on Quora was:

In terms of paid games, the absolute best time to launch is before Christmas day.  This is because many kids receive Apple iTunes gift cards for Christmas and spend Christmas day downloading all the paid games on their “wish list”.

Last Christmas Day December 25, 2014 belonged to Scott Cawthon’s Five Nights at Freddy’s  where the  $2.99 paid game shot up to #10 revenue rank on iOS Apple USA according to App Annie analytics.   

Between 2015 and 2017, we did not look for Christmas favorites on the App Store. We were too focused on exposing the bad guys of mobile gaming rather than the good guys:

Kabam and their “talk the talk” culture that lead to their downfall

Kabam: $800 Million Bid Is Both Lifeline And Death Knell

Kabam: A Mobile Game Unicorn No More?

A Unicorn Startup’s Kiss of Death: Kabam Field

And the Korean company, Netmarble, who bought Kabam’s Vancouver studio and then proceeded to wreck two game communities with Patch 12.0 for Marvel: Contest of Champion and Patch 6.3 for Marvel: Future Fight

Netmarble IPO: Priced for Perfection

Netmarble IPO: How Greed Destroyed Its Kabam Acquisition

Netmarble’s Marvel Future Fight: The Boycott is Now Measurable

But, just when we couldn’t get any more depressed about mobile game companies as we witnessed Netmarble’s destruction of the Marvel:Future Fight community,  we just happened to check out the App Annie charts for Christmas.

Low and behold, who did we discover spiking to #3 on Christmas day and #2 on the next day  but

 

Note: the spikes in revenue rank coincide with Fridays – Sundays.  Unlike “grinder” or “play or be destroyed” mobile games, you can put Roblox down during the week, then go back to it on the weekend without any loss in game assets.

And, we expanded the App Annie chart to discover that Roblex had been building a stronger and stronger community FOR YEARS.

 

We are so happy for Roblox.  Spiking to #2 on App Annie charts the day after Christmas 2017 is a sign to us that Roblox is the mobile game and company of the year.

Roblox has integrity.  No crass monetization like Netmarble’s  random number generator (RNG)  lockboxes introduced in their Patch 6.3 of Marvel: Future Fight.   No radical nerfing of Champions like what Kabam and Netmarble did with Patch 12.0 for Marvel: Contest of Champions

We are not going to spend much space talking about Roblox the game or Roblox the company.  You can read it here on their website

You should also check out this YouTube video of CEO and founder David Baszucki giving a tour of their studio in downtown San Mateo, California.  Also check out this YouTube video narrated by Baszucki on the company’s beginning.   Totally warped sense of humor that we like.

Speaking of YouTube,  we wonder if the folks at Roblox know that their studio is located right across the street from the 2005 original office of YouTube.       (BTW, San Mateo is happening for startups) 

Roblox  2017 : 69 E. 3rd Street San Mateo, CA

 

YouTube 2005: 60 E. 3rd Street, San Mateo CA.

 


Marvel Future Fight Game: The Boycott is Now Measurable

“The revolution will not be televised” per Gil Scott-Heron, but the boycott is now measurable

Keep up the boycott until Netmarble rolls back Patch 3.6

App Annie revenue rank chart as of December 27th – now down from  #38 on 11-29-17 to #127 on 1-5-18  KEEP IT UP

These are the two responsible for Patch 3.6

CEO of Netmarble Games Corp. Bang Joon-hyuk

 

 

GM of Netmarble U.S. Shim Chul-Min


Netmarble’s Game a Bust in the USA – Stock Price Target- 103,000 KRW

Summary

Our analysis of Netmarble’s IPO was that it was “priced for perfection”.  While the Lineage 2 game releases has been near perfect in Korea and Japan, its release in the USA has been a bust and the release in China is on hold due to geopolitical tensions.

As a result, we predict that Netmarble’s stock will fall 45% from its November 26, 2017 closing price of 188,500 KRW to around 103,378 KRW once the revenue impacts of the USA and China releases are fully understood by investors.

Netmarble’s IPO Valuation: Priced for Perfection

On May 11, 2017, Netmarble Games had an IPO on the Korea KOSPI stock exchange.

Due to an enthusiastic demand by Korean, International, and Sovereign funds, the company was able to price the IPO at the high end range of 157,000 Korean won (KRW) per share, or approximately $138 USD per share based on an exchange rate of .00088 KRW / USD.

Three days before trading began,  analyst Moon Ji-hyun with the Korean brokerage house of Mirae Asset Daewoo predicted that the company would exceed expectations for YoY revenue and profit doubling.  She gave the stock a price target of 200,000 KRW, or a 27% increase from the IPO price.  

Most other financial analysts and business reporters wrote positively about the company and its IPO.

Within the first hour of trading, individual retail investors pushed the price up to 171,500 KRW. The stock closed the day at 162,000 KRW, making the funds, the underwriters, the company and its CEO Bang Jun-hyuk very happy.

We alone differed.  (Disclosure: we have never held a position in the stock and do not intend to initiate one at anytime.  We have not received any remuneration for our articles on Netmarble.)

Three weeks before the IPO, on April 18, 2017 we analysed the offering and estimated that Netmarble’s post-IPO forward price sales ratio would be 4.3.  This was based on FY17 YoY reported sales forecasts of a revenue doubling — largely driven by its newly released game Lineage 2: Revolution.

We found that Netmarble’s post-IPO valuation exceedingly high by both South Korean and Western standards for mobile game companies.  

For example, we calculated the current price sales ratio of the very successful Korean mobile game company Com2uS at only 2.6.  We also calculated the market-derived current price sales ratio of King Digital at only 3.08 based on what Activision Blizzard paid to acquire King in 2015.

Netmarble’s 2017 Performance

Our assessment in April 2017 was that Netmarble’s IPO was “priced for perfection” based on a forward price sales ratio of 4.3.  We wrote another paper in May 2017 predicting that the stock would fall 33% from the IPO price to around 105,000 KRW once investors realized that Netmarble’s 2017 sales would fall short of expectations.

To Netmarble’s credit, its performance has been near perfect in the Korean and Japanese releases of Lineage 2.  After a couple of months of drifting downward,  the stock has recovered 47.8% from a low of 127,500 on August 11, 2017, largely due to the strong Japanese release.

On November 15, 2017, Netmarble released Lineage 2 in United States. Our assessment is that the release is a bust as games destined to be long-lasting hits in the USA usually crack the Top 10 iOS revenue rank on the App Annie charts within weeks of release.  The game has now sits at revenue rank #30 which we estimate translates to an annualized run rate in the neighborhood of $75 Million.

Below is the App Annie USA iOS revenue rank chart for Lineage 2:

The stock market has yet to factor in Lineage 2’s bust in the USA.

Also, the 2017 scheduled release of the game in China has been delayed due to geopolitical tensions between the two countries.

Below is a summary of Netmarble’s game performance in 2017 to date:

While Netmarble’s 4th quarter revenue figures should be at an all time high due to the successes of Lineage 2 in Korea and Japan, we forecast that Netmarble will miss analysts’ full year sales estimate of $2.3 Billion (2.5 Trillion KRW), or a revenue doubling,  by 14.8%.

We do not believe that the revenue impacts of the failed USA release and delayed China release are fully understood by investors.  The realization that Netmarble will fail to meet full FY17 revenue doubling forecasts should cause a compression in Netmarble’s IPO valuation multiple of 4.3 times sales.   

Assuming a more realistic multiple of 3.5, we predict that Netmarble’s stock will fall 45% from its November 26, 2017 closing price of 188,500 KRW to around 103,378 KRW within the next three months.

 


Zynga’s Leasing Agreement With Airbnb: A Material Transaction

The tech trendy SF-based email newsletter The Hustle reported on July 11, 2017

“Last night, we received an internal email from an anonymous, verified source at Airbnb confirming that the company has officially signed a multi-year, 5-story lease at Zynga’s headquarters in San Francisco’s SOMA district.”

According to the email:

  • Phase 1 will begin in 2018 and will deliver 3 floors of space ready to occupy by 2019.
  • Phase 2 will commence in 2020, and by 2021, [Airbnb will] be the sole occupants of the east tower at 650 Townsend (the Landlord will continue to occupy the west tower).

According to The Hustle, Zynga declined to comment on their story, and Airbnb didn’t respond to their email requests.

The Hustle’s scoop comes on the heels of another scoop from The Information two month earlier on May 8th of an impending deal. The Information is known for its access to Silicon Valley insider information.

We believe that the lease has a material impact on Zynga’s financials and we believe Zynga will be required to file an official 8-K statement with the SEC once the lease is signed.  

Zynga’s stock has been on the rise in 2017.

Zynga stock (Nasdaq: ZNGA) jumped 14.3% on May 5, 2017 after its 1Q17 conference call where it increased its 2017 revenue and profit guidance due to the early success of its recently acquired game  

Since then, the stock has risen another 14% due to periodic reports by stock analysts upping their stock price targets. For example, CNBC Investing reported on May 30th that a Piper Jaffray analyst raised the stock’s rating to overweight from neutral with a price target of $4.00 a share.

Zynga Stock Chart

The stock did not move on May 8th, the day of The Information scoop. It did not move on July 11th, the day of the Hustle scoop

Both scoops show up when you Google “ Zynga Airbnb.”

The question is why hasn’t the stock market reacted to these scoops?

We present the case below that lease has a material impact on Zynga’s financials.

According to a SF real estate publication The Registry, Zynga bought its 717,000 square foot HQs in 2012 for $228 Million or $ 318 per square foot.  Zynga was growing fast at the time and was flush with cash after raising  $1 Billion in a December 2011 IPO.

The building is a five story, high ceiling, open space structure located at 650 Townsend Street.  It is a block from Airbnb’s current headquarters.  See Link to Youtube Video below showing clearly the similarity between the two HQs

Video Of Interior of Zynga and Airbnb HQs

Interior Screenshot of Zynga HQ

 

Screenshoot of YouTube video of Zynga HQ

 

Airbnb is no ordinary tenant. It is the second highest valued startup after Uber. Airbnb’s current valuation is at $31 Billion based on a $1 Billion funding round that closed March of 2017.  

In estimating the current value of Zynga’s building, you have to take into account the fact that Airbnb will become an obvious candidate to buy the building in a year or two after it has an a multi-billion dollar IPO. It would negotiate to take over the whole building with Zynga vacating to smaller quarters.

Zynga actually listed the building for sale briefly in 2016, but withdrew because the cost of the leaseback offered by potential buyers was too high.   At the time,  $800 per square feet was mentioned as the going rate for SoMa office building.

Due to the fact that this building is absolutely ideal for high tech, and that the SF office market is still booming,  and last, but not least, that Airbnb might be the buyer after its IPO, we would value Zynga’s HQ currently at closer to $1,000 per square feet or $717 Million.  

This works out to be a tripling of its investment initial purchase price of $218 Million.

Zynga’s market valuation as of July 11, 2017 was $3.11 Billion.  Its cash balance as of 1Q17 was $720 Million.  It has no long-term debt.

The combination of $720 Million in cash with another $717 Million in a readily marketable building totals half of its current valuation.  

Plus the financials of Zynga’s game operations show signs of returning to cash flow positive. In 2016, it turned operating cash flow positive at $60 Million for the first time in 3 years. While not profitable for quite some time, it has three straight quarters of increasing revenue.

Once the lease is made official,  the stock should pop certainly over $3.80 a share.