Angry Birds Maker Cuts Marketing Spend to Lift Profitability

(Bloomberg) -- Rovio Entertainment Oyj 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 amortization grew 43 percent to 14.6 million euros ($17.3 million). The earnings margin rose to 22.2 percent of sales, up from 15.4 percent a year ago. The stock advanced 5.5 percent at 10:46 a.m. in Helsinki.

The company warned that in the short term, profitability is likely to decline as its spending on gaining users will 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,” Chief Executive Officer 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 260 million euros to 300 million euros and estimates adjusted earnings before interest and taxes will be 9 percent to 11 percent of net sales. It’s still expecting to spend about 30 percent of the Games unit’s revenue on winning over users this year.

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 percent in a single day in February.

Shareholders who bought Rovio stock for 11.50 euros a piece in the IPO less than a year ago have watched as the stock has lost almost 60 percent, leaving the company with a market value of about 400 million euros.

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.

The Numbers

• Revenue declined 0.9 percent to 65.7 million euros on currency headwinds
• Net income doubled to 7.1 million euros from a year earlier
• Adjusted Ebitda rose 43 percent to 14.6 million euros
• Adjusted Ebitda margin expanded to 22.2 percent of sales from 15.4 percent
• User-acquisition costs fell 11 percent to 14.6 million euros

To contact the reporter on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net, Kim Robert McLaughlin

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