- Finnish game developer Rovio is best known for its hit game “Angry Birds” but the company has struggled to release anything as successful as the original since.
- A profit warning last week wiped out half of Rovio’s value in a day.
- A graph that Rovio’s CEO, Kati Levoranta, showed on Friday explains exactly what the firm’s problem is.
The stock price for Rovio, the maker of the one-hit wonder “Angry Birds” game, looked like this as of the last week of February:
The firm’s stock price began tanking last week when it posted a gloomy outlook for its fourth quarter. Investors won’t have been reassured by the company’s financials, released on Friday alongside the news it is shuttering its London studio after just a year.
While tech firms can normally expect to do well over Christmas — lots of people upgrade to new phones and download new apps — Rovio missed analyst expectations for its fourth quarter.
Revenues for the fourth quarter were €73.9 million ($90.7 million, £66 million)), while earnings per share were 10 cents. That’s lower than analyst estimates of €77.33 million and 11 cents per share. Full-year sales were €297.2 million ($366 million, £266 million), also lower than analyst expectations of €298 million.
Rovio’s business depends entirely on the recreating the popularity of “Angry Birds” for new titles, and a chart shown by chief executive Kati Levoranta shows how the firm is failing to do that.
This graph shows how many gross bookings each of Rovio’s titles is bringing in. And it shows something extremely worrying: two out of the three new games released by Rovio last year saw their gross bookings decline between the third and fourth quarters. The three games were “Angry Birds Evolution”, “Battle Bay”, and “Angry Birds Match.”
Meanwhile you can see “Angry Birds 2”, represented by the light pink block, is still generating more gross bookings despite being released in 2015.
It might make sense that an older game which has had time to build up a loyal audience would be faring better than newer titles.
But new titles that are only a few months old shouldn’t already be in decline.
“‘Blast”, ‘Evolution’, and ‘Battle Bay’ have not been growing,” said Levoranta in an investor presentation on Friday. “Actually revenue was lower than in Q4 than in Q3.”
Even “Angry Birds Match”, which did increase its gross bookings, isn’t the panacea the firm needs, with Levoranta saying the game fell short of company expectations.
You can also see the grey block, which represents all of Rovio’s other titles, is similarly declining.
Levoranta blamed declining performance on the rise of casual gaming on mobile. More competition means it’s more expensive for Rovio to try and cut through the noise and persuade users to download new titles.
The answer, she said, is to produce fewer games, and focusing on growing the titles that are already doing well.