Angry Birds maker Rovio misses Q4 on sales of €73.9M, EPS of €0.10, closes London studio

Gaming and entertainment company Rovio continues to have a very hard time of it as it faces the music on the waning popularity of its once-might Angry Birds franchise. Today, the Helsinki-based company reported Q4 and full-year financials that fell short of analysts’ most conservative estimates as it blamed lower-than-expected interest in its new slate of games. The company also confirmed that it would be closing its London office, opened just over a year ago to kickstart new games development, and that the head of its Games business unit, Wilhelm Taht, would be leaving the company effective immediately.

“In the last quarter of the year our new games, Angry Birds Match, Angry Birds Evolution and Battle Bay landed short of our expectations,” Kati Levoranta, CEO of Rovio, said in a statement. “Competition in the market intensified, which led to a significant increase in the unit costs of user acquisition, especially in the puzzle genre.”

Short of expectations may be an understatement. According to App Annie, Evolution is currently ranked 562nd in the US App Store, and 451st in Google Play. Match is doing even worse with a ranking in the 700s. And Battle Bay — Rovio’s big push to start a franchise outside of Angry Birds — is even lower, at 1,342 in Games on iOS and no ranking at all in the general Games category for Google Play.

That had a big knock-on effect on Rovio’s numbers. Revenues for the quarter came in at €73.9 million ($90.7 million) and earnings per share were 10 cents — versus analysts’ estimates of €77.33 million and 11 cents/share. Full-year sales were €297.2 million — also lower than analysts’ expectations of €298 million (which themselves were adjusted after Rovio said a week ago that it was downgrading its 2018 outlook).

The results have sent the stock tumbling to a new low. Rovio is now trading at €4.39, less than half the value it had when it made its public debut in September 2017 at €11.50.

The London studio that is now closing underscores some of the upheaval that is still going through the company as it works on trying to return to growth. It was opened little over a year ago, in January 2017. And at the time, Rovio said its focus would be on building massively multiplayer online games — one of its departures away from mobile apps — and IP “beyond the Angry Birds universe”. It had plans to hire 20 people, although it looks like only seven had been working there, according to the announcement from studio head Mark Sorrell.

Although Rovio said Taht is leaving for personal reasons, the company will be using the departure to “simplify our structure,” according to a statement from Levoranta. The CEO will be taking over running the Games division until a replacement is found.

Rovio’s financials and business outlook highlight what has been a persistent challenge for gaming companies that have turned to the public markets: while publishers ride high when their games are hits, the cyclical nature of the genre, where people’s tastes change and they move on to the next big game, means that unless the publisher has managed to publish the next hit, they themselves take the hit.

Rovio is not alone: Zynga’s rise and fall is another example of how the challenges of being a publicly listed gaming company plays out. In that context, it is notable that Supercell never chose to take the public market route, shielding itself as a business from that kind of scrutiny and expectation.

Rovio’s full-year games revenues were up for the year by 56 percent, and notably the company made a small operating profit in Q4 (€9.9 million). But in the previous quarter the company’s sales had only grown by 17 percent.

Rovio said that group revenue is expected to be in the range of €260 million and €300 million in 2018, although this is essentially putting it, at best, flat with 2017 revenues. The company also expects its profit margin before interest and tax to remain at the same level or lower: between 9 to 11 percent, compared to 10.6 percent in 2017.

Another big issue for gaming companies is that the popularity of the game is only one of the challenges. The other is the tech. We have seen in the last decade a huge shift in how games are delivered, from consoles to PCs and then a sudden rise of mobile apps. Now gaming companies are waiting to see what might be the next big platform.

While Rovio made its name with mobile gaming and mobile apps, the company is trying to follow in the footsteps of a lot of other entertainment services like Spotify and Netflix by building a streaming platform to deliver its next generation of entertainment. To this end, Rovio said it would continue to invest in its new Hatch Entertainment subsidiary — which is building a cloud-based streaming game service. It projects that it will invest between €10 million and €15 million in the effort this year.

“Hatch represents one possible way to play mobile games in the future,” Levoranta said. “By investing in the development of Hatch’s streaming service Rovio diversifies its portfolio, aims to utilize the possibilities that new technologies offer for games business, and implements company’s strategy to explore the future of gaming alongside the continuous free-to-play games development.” He added also that the company is eyeing up acquisitions to build up the division.

Update: Rovio’s statement from its financial presentation:
“On March 1st, 2018, Rovio decided on a plan that would see its game studio in London closed and the functions of the games business centralized in Espoo and Stockholm. Should the plan be implemented, the operations of the London studio will be discontinued by the end of March and the employment of the seven people working at the London studio will be terminated. Rovio plans to utilize the work done at the London studio in the MMO game genre at the Battle studio in Espoo, particularly in real-time player vs. player and team vs. team games (such as Battle Bay).”