San Francisco-based mobile gaming startup Funzio had just come off making more than $5 million in sales per month when it sold to Japan’s GREE for $210 million last week. Profits may be another story, and there’s less visibility into that. But Funzio had to decide between raising additional funding or selling at the time the deal happened.
The numbers were revealed in GREE’s earnings statement today. Funzio’s acquisition comes at a very fascinating time for GREE, a $4.8 billion mobile gaming company from Japan. Like Zynga in the U.S., GREE and its archrival DeNA are part of a younger vanguard of freemium gaming companies that have found success in their home market of Japan. The company made $168.5 million (13.4 billion yen) in net income on $578.9 million in revenue (46.2 billion yen) in the quarter ending in March. Just for comparison, that’s about 80 percent more revenue than Zynga in the same time period.
But there are threats on the horizon. GREE’s shares were absolutely slaughtered on the Tokyo Stock Exchange on Monday. The company’s shares fell a record 23 percent after the Japanese government said it was investigating the legality of various game mechanics in the social gaming industry. Many Japanese games have a slot machine-like mechanic called “Gacha,” where players will randomly win different special items. If they win all the items, they might get a grand prize. The National Consumer Affairs Agency said it’s now looking at regulating this tactic, which could seriously crimp revenues for GREE.
If anything, this underscores the urgency there is in expanding the company abroad. With the Japanese market becoming saturated, GREE is looking to the West and it’s done two major acquisitions to break into the U.S. with the $104 million deal to OpenFeint and last week’s $210 million deal to buy Funzio. The plan is to be a dual games platform and developer, just like the company is in Japan. They’ll make their own in-house games, but they’ll also distribute, publish and promote games from other developers.
San Francisco’s Funzio fits into the first-party game development side. The company, which was started by experienced game developers who had spent time at Zynga, Storm8 and hi5, had three mobile gaming titles to its name. They were behind graphical role-playing games like the mafia-themed Crime City, the military-themed Modern War and the fantasy-themed Kingdom Age.
They only arrived on mobile platforms last August with the debut of Crime City, a brand that the company had already put on the Facebook platform. That set them up to have a $2 million quarter between July and September of last year. Then they launched Modern War in November and the two titles got them to a $6 million quarter during Christmas. Finally, Kingdom Age, launched last month, got them to a $12 million quarter.
Just after Kingdom Age launched, I spoke with Funzio’s vice president of business development Jamil Moledina. Even though the game was downloaded at roughly the same pace that the company’s earlier games were, engagement was up. Both Modern War and Kingdom Age got to 1 million downloads in about the same time. But Kingdom Age saw the equivalent of 93 years of gameplay, while Modern War saw about 50 years of gameplay in its first five days.
Again, I don’t really have visibility into profits. But it wouldn’t be surprising if margins were tight as the cost of marketing apps and acquiring users has gone up dramatically over the past year. Glu Mobile, another San Francisco-based mobile game developer that’s publicly traded, posted very strong quarterly growth with $17 million in smartphone revenues for the first quarter. But it still reported a net loss of $6.8 million, which was probably partially fueled by its lingering featurephone gaming business.