Maker of Angry Birds improves profitability in first quarter
Helsinki — Rovio Entertainment said its profitability improved in the first quarter after the Angry Birds game maker spent less on winning over users for its games and saw cost efficiencies in brand licensing.
Adjusted earnings before interest, tax, depreciation and amortisation (ebitda) grew 43% to €14.6m. The earnings margin rose to 22.2% of sales, up from 15.4% a year ago. The stock had risen 5.5% at 10.46am in Helsinki.
The company warned that in the short term, profitability was likely to decline as its spending on gaining users would take a longer time to generate positive returns. It may take as long as 12 months to pay back its investments in user acquisition from a previous estimate of up to 10 months, Rovio said.
"This may have a negative profitability effect in the short term," CEO Kati Levoranta said in the company’s earnings report on Thursday. "The cost for digital marketing in the industry continued to be high."
Even with a possible short-term hit to profitability, Rovio is still forecasting full-year revenue of €260m-€300m and estimates adjusted earnings before interest and taxes will be 9%-11% of net sales. It’s still expecting to spend about 30% of the games unit’s revenue on winning over users in 2018.
Investors have had to weather several stock sell-offs since Rovio’s initial public offering in September. First, Rovio failed to explain rising marketing costs to investors in November, and then surprised them with worse-than-expected guidance and refused to step out of a self-imposed silent period even as its stock lost 50% in a single day in February.
Shareholders who bought Rovio stock for €11.50 a piece in the IPO less than a year ago have watched as the stock has lost almost 60%, leaving the company with a market value of about €400m.
Investors are desperate for proof that Rovio isn’t a one-product wonder and can repeat its Angry Birds success. Rovio’s top five games in the first quarter were Angry Birds 2, Angry Birds Friends, Angry Birds Match, Angry Birds Blast and Angry Birds Evolution. The company currently has 10 games in various phases of development, and one of them is in soft launch, it said Thursday.