Rovio shares drop 50% as ‘Angry Birds’ maker falls to earthHeat Profit
Rovio lost more than half of its Market value on Thursday after warning that revenue and profitability would come in significantly below analyst expectations in 2018, as the Angry Birds maker predicted that the cost of attracting new users would rise heavily.
Shares closed down more than 50 per cent to €4.94, after the Finnish company said revenues for 2018 would be €260m to €300m, below consensus expectations of €337m.
Ahead of full-year results next month, Rovio added that earnings would be hit by a €10m to €15m Investment in its cloud-based gaming service that it hopes will drive future growth. Its margin for earnings before interest and tax, excluding non-comparable items, is expected to be 9 to 11 per cent next year compared with consensus expectations of 14.3 per cent.
Rovio has struggled for years to develop a second game as popular as Angry Birds, and has floundered since its initial public offering in September. At the time it was one of the largest mobile gaming groups to go public, with a valuation of almost €900m, but is now worth half as much after disappointing Investors with updates about its business.
“The economics of the gaming Market has changed, so for tier 2 games like Rovio’s you have to almost spend more and more on users,” said Aaron Kaartinen, analyst at FIM, the private bank. “At the same time you just don’t have a hit game so the margin is not going up — with a new and better game that could happen but with Rovio’s current portfolio it’s not happening.”
Rovio said the final quarter of 2017 had been “successful” after revenues increased 17 per cent compared with the same period the previous year. However, its cost of attracting new users was 24 per cent of revenues from games, which it said is expected to rise to 30 per cent next year.
“In 2018, Rovio’s games business will focus on continuing development of its live game portfolio,” the company said in a statement. “The cost per acquired user has risen significantly in the Market.”
Mobile gaming companies — including King Digital, which developed Candy Crush Saga, and Zynga, the maker of FarmVille — have all struggled to create big blockbuster games with as much appeal as their first hits.
After a torrid few years in which Rovio changed chief executives twice and almost halved its headcount to 370, the group had a surprise success with The Angry Birds Movie in 2016, which made $350m at the box office. The company went public in September at the top of its projected price range, but was valued far below the $2bn valuation some backers of the company had suggested a few months earlier.