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


An Idea For A Millennials Investment Vehicle: A Big Tech HQ2 REIT

There have been a number of recent surveys asking millennials with substantial cash savings — predominantly young professions in tech and creative positions — what kinds of investments are they interested in.  

As if they were disciples of the late great fund manager Peter Lynch, whom they probably never heard of,  they say the are interested in investing in what they use and understand.

Plus, the added benefit of such investments is being able to talk about them to friends who are familiar with the names.  Really, how fun it talking about how great your S&P 500 index fund is doing?

The Peter Lynch approach to investing is wise in some ways, but foolish in other ways as it tends toward undiversified, trendy, high risk investments as opposed to diversified, value-based investments.

At the top of the list of investments of interest to millenials is own home ownership.  Next comes stocks in the big tech companies they use and understand: Apple, Facebook, Apple, Amazon, and Google.  Next comes smaller, consumer-facing tech companies like Tesla, Netflix, and Snapchat.

And within the last two months, cryptocurrencies have captured their interest.

But, with the bust of crypto and the dim prospect of ever saving enough for a down payment on a “starter” home of $1+ Million in tech heavy areas like the San Francisco Bay Area,  there is an opportunity to come up with new investment vehicles  composed of a diversified portfolio of assets that millennials use and understand.

One recent innovation is something called an eREIT  (electronic Real Estate Investment Trust) like Fundrise — a trendy looking online website for investing as little as $1,000 in a professionally managed portfolio of property REITs.  

But there are multiple problems with eREITs.  This includes a double layer of fees charged by the managers of the eREIT on top of the fees charged by  individual REITs.

It also includes evidence that long term rates of returns (ROI) on actively managed real estate REITs are less than ROIs on low fee, passively managed S&P 500 index funds.

As an alternative to eREITs, we would like to propose a new straight-up REIT that both should appeals to millenials and should outperform existing REITs.  Obviously, the increased expected ROI comes with the increase risk as of a concentrated portfolio of properties concentrated in about 8 metropolitan areas.

We call this new millenial investment vehicle an HQ2 REIT.

We identify below 8 metropolitan areas  as most likely to be named a future location of  secondary headquarters — know as HQ2 — of big tech companies.

The includes the already announced intent of Amazon to name one city out of 20 finalists for its HQ2 in 2018 plus Apple’s recent announcement that it has plans for its own smaller HQ2.   

While unannounced,  it is highly likely that Google and Microsoft will also need to plan for an HQ2 in the next 5 years.    Assuming that it is unlikely that the four companies — Amazon, Apple, Google, and Microsoft — will pick the same metropolitan area, this means that 50% of our 8 most likely choices for an HQ2 will actually get an HQ2.

In terms of arriving at this list, we start with Amazon’s recently narrowed down list of 20 metropolitan areas in the running for its HQ2 that is projected to employ ultimately around 50,000 people.    

We next apply a Business Insider assessment of the likelihood (a simple linear ranking 1-20)  of each city being chosen.  We also make an additional division into two group based on median housing prices and proximity to a University with a top 20 Graduate School Computer Science Department in Artificial Intelligence   

Sources:

Business Insider Ranking of Finalists for Amazon’s HQ2

Median Home Prices in Top Metro Areas — 2015

US News Ranking of Graduate AI Departments

Here is the more extended version of list


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.