By Larry Abrams, published by Seeking Alpha 3/24/13
Investing in publicly-held mobile gaming companies like KING, ZNGA, GLUU, and a host of other companies around the world, is the purest play ever on the hit-making business. It is momentum investing on steroids. Investors, 99% of which have never played a mobile game in their life, have been drawn to the industry lately by press reports of the success of “Flappy Bird” and of “Candy Crush Saga.”
The magnitude of success of “Flappy Bird” first came to light in a month ago in an interview in The Verge. Dong Nguyen, the game’s sole creator, revealed that, while the free-to-play game was earning an average of $50,000 a day from advertising. It was truly amazing that a single person could produce a piece of software, upload it to an app store, and receive 50 million downloads within months of release solely on the basis of social media chat.
Another example comes from a Wall Street Journal article on the upcoming IPO of King Digital Entertainment (KING), the creator of the smash hit “Candy Crush Saga”,
“In its filings with the U.S. Securities and Exchange Commission on Tuesday, the game developer said it saw a more thantenfold revenue increase in 2013, as sales skyrocketed to $1.88 billion from $164 million in 2012… King said its net profit last year was $568 million, up from $7.8 million.
The speed of success of mobile games suggests that you can’t wait for quarterly 10-Qs and conference calls to give you buy and sell indicators. Revenue streams can explode in a matter in days not months. But, it is no sure thing that a quick rise to the top of an app store bestseller list is sustainable. Again, you need to follow sales weekly at least.
And even if a game is so addicting that players keep paying for add-in purchases for months, it’s not heroin. Game addiction eventually wears off. And you will get killed if you wait for some CEO in a conference call to give you the bad news.
To invest with success here, you need something equivalent to weekend box office figures followed closely by investors in pure play movie studios like Lions Gate (LGF) during the release of movies with blockbuster potential.
Fortunately, there are several data analytics companies that we are aware of which track daily app store downloads and in-app purchases of mobile gaming companies. We have a limited access, free account at App Annie. (Disclosure: I have not, or will not ever, receive monetary remuneration from App Annie.)
With a free account, you cannot download any data. But, you can take screenshots of graphs of daily rankings (1-1000) of mobile games by revenue where revenue is the sum of download revenue + in-app purchases. These graphs can be filtered by app store – Apple Store, Google Play, and Amazon – by mobile game type, and by country.
App store data does not include revenue from advertising. But, mobile gaming companies, led by the Japanese, seem to be headed toward a free-to-play business model with monetization via in-app purchases of addicted players.
What follows is a sample pairing of time series app store data alongside daily stock prices of a “franchise game” of a pure play mobile game company over a period of months. It will give you an ex-post view of how daily app store data might have been used to signal a buy or sell ahead of the next 10-Q.
The example is COLOPL’s franchise game, “Quiz RPG: The World of Mystic Wiz.” COLOPL went public in December 2012 and the stock languished until Quiz RPG was launched in late April of 2013. Upon release, the game quickly rose to #5 on the Apple Store-Japan revenue list and has stayed in the Top 20 since. At launch, COLOPL’s stock was at 479￥/share. The stock peaked on January 20th at 4,110￥/share, a 9-bagger in 9 months.
Rather than wait until a July or August conference call when the CEO mentions the potential of Quiz RPG, you could have tracked the game’s app store data enough to convince you go all at around 1,000￥/ share in June.
This is daily sales data that you can get firsthand. You are not dependent on when some Wall Street analyst chooses to release interim sales data – good or bad — from a polling of customers.