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Playtika’s purchase offer is not a surprise. The low valuation makes Rovio a desirable purchase

The low valuation level has made Rovio a clear buying target. Inderes analyst Atte Riikola does not consider Playtika’s offer in the long term as one that would take into account Rovio’s growth opportunities, writes HS Vision reporter Elina Lappalainen.

Gaming company The valuation level of Rovio shares on the Helsinki Stock Exchange has been low in recent years. It has also made it a speculated acquisition target.

“It has been talked about for a long time that Rovio would be a suitable destination for a bigger player. Its appreciation level has been low, but at the same time in the gaming industry, Angry Birds’ brand is strong”, Inderes analyst Atte Riikola comment.

Therefore, the purchase offer made by the Israeli gaming company Playtika is not really a surprise.

Rovio’s share value has been around six euros since last fall. At the same time, the company has a large cash register and cash assets of around 160 million euros. Self-sufficiency rate high, 72 percent.

“Rovio is priced at around 6-7 times the size of the operating profit, which is a really low valuation level. Investors haven’t factored growth expectations into it,” says Riikola.

In recent years, Rovio’s turnover has stagnated. In 2017, the company’s turnover was 297 million, and in 2021 the turnover was 286 million euros.

“I bet this offer won’t go through.”

In January Started as CEO in 2021 Alexandre Pelletier-Normand however, the company has started a new growth gear. Rovio has invested, among other things, in establishing new gaming teams in Canada and Barcelona, ​​and has grown through acquisitions.

Alexandre Pelletier-Normand at Slushi’s investor dinner in Löyly in December 2021.

That’s why Riikola estimates that in the short term, Playtika’s purchase offer for Rovio can look good if you only consider its current valuation level. If we look at the potential brought by growth investments in the longer term, the offer does not look so attractive.

“There is stable profit development ahead. Rovio is in good shape and has invested in growth. Now, in the next few years, we will only start to see if it will achieve a level jump in turnover”, says Riikola.

In other words, Rovio has no need to end up being part of a larger group, but is perfectly capable of continuing as an independent company.

Playtika the value of the offer is more than 680 million euros, if the shares owned by Rovio are not taken into account. It is a lower price than the market value at which Rovio was listed on the stock exchange in 2017.

Rovio’s market value right after the IPO was no less than 896 million euros.

However, current Rovio cannot be directly compared to the time of listing. The market situation was different, and the company was sold at the time of listing as a strong growth story. Shortly after the listing, the company’s share price collapsed – and investors swallowed their disappointment.

However, according to Riikola, Rovio has emerged as a stable cash flow producer over the years.

“I bet this offer will not go through. In the end, of course, it’s closed [pääomistajien] About Hedie’s family and their decision. It would be a bit awkward if one Finnish gaming company ends up in the hands of a foreign owner,” says Riikola.

So far, however, Rovio’s efforts to achieve growth with games other than the Angry Birds brand have not gone as hoped.

Gaming company Rovio’s major owner And Hedin In 2020, the family company Oivar Ab divided the ownership into different companies of Kaj Hedi’s children Mikael Hedin, by Camilla Hed-Wilson and Jonathan Hedin to investment companies.

Kaj Hed invested and financed Rovio in the early stages of the company. He is one of the founding trio of Rovio Niklas Hedin uncle.

Jonathan Hed’s investment company Adventurous Ideas now owns 7.79 percent of Rovio’s shares. Camilla Hed-Wilson’s Brilliant Problems the same amount and Mikael Hed’s Impera 6.13 percent.

Niklas Hedi’s ownership is currently 1.65 percent.

Present the year has been challenging for Rovio, as it has been internationally for the entire gaming industry.

The company said in connection with the 2022 third quarter results announcement that it expects the adjusted operating profit to be lower this year than last year. The company cited investments and user acquisition as the reason.

During the corona pandemic, the gaming industry received a growth spurt when people had time to play at home, but after the pandemic subsided, the market situation has changed.

According to Data.ai, the global gaming market fell by around nine percent at the end of the year, and in the US market, which is important to Rovio, the industry’s turnover was down by 11 percent.

Rovio is especially known for the Angry Birds games, which still make up the majority of its revenue.

Published in summer 2015 Angry Birds 2 is the company’s mainstay, which brought a total turnover of 108 million euros in 2021. In July–September 2022, the game’s gross sales were 28.7 million euros during the quarter.

There are plenty of new games in Rovio’s development pipeline.

According to Inderes, Rovio’s biggest game by far has continued to perform well, especially thanks to the fact that Rovio has grown a team that develops more content for the game. For example, seasonal in-game campaigns, such as Christmas-themed new content, are central to such games.

The second biggest game is Angry Birds Dream Blast, whose sales development has been a positive surprise, according to Inderes’ updated company report in October. In the fall, the gross sales of the game were already around 20 million euros. The company has also invested Angry Birds Dream Blast –for growing the team and user acquisition with marketing.

There are plenty of new games in Rovio’s development pipeline. So far, however, its efforts to gain growth with games other than the Angry Birds brand have not gone as hoped.

In August 2021 Rovio bought the Turkish Ruby Games, which is especially known Hunter Assassin – about the game. Hunter Assassin was the sixth most downloaded game in the world in 2020.

Ruby Games makes so-called hypercasual games, i.e. quickly developed small entertainment games. They can quickly rise to the surface, but are not long-term stone legs.

So far, the trade has not brought the desired growth. Ruby Games’ July–September 2021 was weak. The company’s games generated a turnover of only 2.5 million euros.

Rovio Entertainment

  • A mobile game company founded in 2003 that develops and publishes games and licenses the Angry Birds brand for consumer products, animations and other entertainment.

  • The company’s biggest games are currently Angy Birds 2, Angry Birds Dream Blast, Angry Birds Journey and Angry Birds Friends.

  • Turnover in 2021 was 286.2 million euros. Of that, 66 percent came from the United States.

  • Operating profit was 37.7 million euros in 2021.

  • Rovio employed an average of 522 employees in the quarter that ended in September.

  • The managing director is Alexandre Pelletier-Normand. The chairman of the board is Kim Ignatius.

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