Korea, in particular, was the battleground for usage/downloads/revenues and even physical presence.
In the latest Press Release from Gamevil, the company states “GAMEVIL has agreed to purchase shares and control from the majority shareholders on October 3rd.” The companies’ HQs are in Korea and both have been major players in the mobile gaming space for a few years now with each of them contributing games across all platforms and for most gaming genres. This consolidation of two of the largest publishers in the APAC mobile games market is a clear sign that the mobile games market continues to mature, with scale an increasingly important asset.
The most interesting aspect of this deal is the plan is to keep both home-grown platforms active – Gamevil Circle and Com2uS Hub - rather than consolidating the two portfolios into one. This strategy isn’t the first of its kind (see Facebook’s acquisition of Instagram), but it is a different approach than other top gaming companies take (i.e. Electronic Arts). However, in this specific situation both have platforms that can help cross promote the games to a new user base rather than suspend one platform and hope users will migrate by themselves.
Looking from Gamevil’s perspective:
This deal makes absolute sense for a multitude of reason, but none more important than controlling Korea. For years now, these two mobile gaming giants were back and forth atop one another in quarterly revenues. The closest revenue quarterly revenue recorded between the two was actually this past quarter – 2Q 2013 – where each of them were around the $21.5 million (USD). Gamevil is striking while the iron is hot with one the company’s newest games – Dark Avengers – just surpassing 10 million downloads a week after being ported to Qihoo 360, one of the largest independent gaming markets in China.
Going beyond the obvious comment that “this is smart because Gamevil acquired a competitor”, the majority control purchase of Com2uS is a sound business move. Com2uS’ quarterly revenue pattern has little variance in revenue from quarter to quarter making the addition a “no-brainer” as it will provide a consistent revenue stream.. The chart below portrays the consistency of Com2uS’ revenue pattern by matching up actual revenue vs +/- $2 million from the average revenue of the time periods. Out of the 18 quarters, dating back to 1Q 2009, there are just 3 quarters where Com2uS’ revenue exceeds the + $2 million average line and it has not dropped to -$2 of the average line.
Figure 1: Com2uS’ Actual Revenue vs Average Revenue
Looking from Com2uS’ perspective:
Com2uS may have been a mobile gaming developer, but the company made its money from social gaming. Social gaming has been stagnant which is why more and more companies are abandoning the genre, so it makes a lot of sense to cash out and although the exact terms of the deal were not disclosed, the rumored amount is around $70 million (USD).
Another likely scenario is Com2uS could be sitting on another quarterly decline which would come off the heels of a large drop in revenue from Q1 2013 to 2Q 2013. If this scenario is true than the survival rate of social gaming in general may be in a more drastic decline than previously mentioned, or is it just cyclical and Com2uS lost its touch like others have, including Zynga.
The obvious social gaming outlier right now is King.com – Candy Crush Saga’s developer. The U.K. based, privately owned company is preparing for an I.P.O. on New York’s NASDAQ for a reported $5 billion dollars. – via CNN Money.
However, Gamevil appears to be primed to take a gamble by purchasing shares and control of its long time competitor Com2uS. The pay-off will be known after a few quarters, but with the decline of social gaming this gamble appears riskier than necessary.