Kabam Enters 2013 With More Than A $200M Runrate Even As The Gaming IPO Window Seems Closed

Kabam, a midcore game developer that staged a stunning new chapter on mobile platforms, is out bragging about its expected revenues for the coming year. The company said it ended 2012 with gross revenue of $180 million, up 70 percent from the year before. Gross revenue is bookings, so it doesn’t account for the 30 percent platform cut that a provider like Apple, Google or Facebook would take.

Kabam didn’t reveal its margins, except to say that the company was profitable (which I honestly hope should be the case for any mature freemium gaming company).

Kabam was a pioneer in midcore freemium gaming on Facebook. Unlike Zynga, they didn’t focus on reaching the largest audience possible or the stereotypical 35-year-old female casual gamer. Instead, they cultivated a smaller player base (usually more male) that spent more on average to play. As Facebook became a more challenging environment, they pivoted to mobile like many other game developers did. That mobile business, which includes extensions of their Kingdoms of Camelot franchise, is now a more-than $100 million business.

Another tidbit the company shared was that it was valued at at least $500 million during a May 2011 round of funding that raised $75 million for the company. It also said the recent strategic investment from Warner Bros. Entertainment Inc. and Metro-Goldwyn-Mayer Studios Inc. was secondary, with the investors purchasing shares from earlier investors. On top of that, it says it has $45 million in cash in the bank.

So why reveal all this? Kabam says it’s to “establish who’s leading.”

But we occasionally see companies do this from time to time as positioning ahead of a sale or additional investment. Seattle’s PopCap actively talked about a potential IPO for months before EA turned around and bought the company for up to $1.3 billion including earnouts.

The thing is that Kabam has raised at least $125 million. That’s substantially more than what other midcore developers like Kixeye, which has $19 million in funding, have raised. That just means the bar for an exit, whether that’s through a sale or through a public offering, is much higher. Kabam has mentioned an IPO in the past as a possibility, depending on what’s right for the company.

But given how Zynga performed through 2012, it would be hard to imagine that public market investors have the appetite for another freemium gaming IPO. Zynga is valued at 4.5 times the at-least $500 million that Kabam said it was worth in the 2011 round, on at least six times the revenue.

Then there are only a handful of companies in the world, like EA, Zynga, Nexon, DeNA and GREE, that could even make an offer that would clear the bar for investors. Zynga has appeared to shy away from larger acquisitions after its shares were clobbered in the wake of the $180 million OMGPOP deal and CEO Mark Pincus’ April 2012 remarks that the company was looking at more deals of that size.

Many other game developers of similar or slightly smaller size face a conundrum — there is an inhospitable public market, a relatively small number of potential buyers and lower valuations of publicly-traded comparable companies. This has meant that there might still be some misalignment between what game developers and acquirers are expecting to see in M&A discussions. This may be why we haven’t seen any big ticket acquisitions of game developers recently — at least outside of Japan, China and South Korea. (Japan is a completely different story with the Pokelabo and Gloops deals.)

How long will this stalemate go on? We’ll see!