5G platform wipes out profits at 'Angry Birds' maker Rovio

5G platform wipes out profits at 'Angry Birds' maker Rovio

Quarterly profit at "Angry Birds" maker Rovio Entertainment plunged 96per cent as the mobile games company was hit by the slower-than-expected take up of its 5G gaming platform Hatch and higher marketing costs.

Angry Birds game characters are seen at the Rovio headquarters in Espoo
Angry Birds game characters are seen at the Rovio headquarters in Espoo, Finland March 13, 2019. REUTERS/Anne Kauranen/Files

HELSINKI: Quarterly profit at "Angry Birds" maker Rovio Entertainment plunged 96per cent as the mobile games company was hit by the slower-than-expected take up of its 5G gaming platform Hatch and higher marketing costs.

Shares in the Finnish company slumped as much as 22per cent after it said it was evaluating "strategic alternatives" for Hatch, while also looking to make annual cost savings of 6 million euros (US$6.6 million) at the 80per cent-owned unit.

It did not elaborate what those alternatives might be, but said it planned to shift the unit's emphasis to Hatch Kids, a subscription and streaming service for children and families.

Rovio, looking for ways to build on the success of the 10-year-old "Angry Birds" series of games, said competition in games streaming had intensified globally while the roll-out of 5G networks and devices had been slower than anticipated.

Last year, the company opened up Hatch to outside investment, but on Wednesday it closed the fundraising without announcing any new investors.

OP Bank analyst Kimmo Stenvall said he still saw "some kind of future" for Hatch, estimating its value at 50 million euros, but said that without new investors the unit would continue to weigh on Rovio's cash flow and profitability.

"It may be a bit too early for Hatch at the moment. Gaming is rising to a new level with 5G connections, and 5G coverage is still on an early stage," he told Reuters, adding that competition would be "fierce".

Rovio's fourth-quarter adjusted operating profit tumbled to 200,000 euros (US$220,000) from 5.3 million euros a year earlier, while sales dropped 1.4per cent to 71.6 million euros.

Brand-licensing revenue from Angry Birds branded toys and other products declined 21.1per cent year-on-year to 24.3 million euros in 2019 and was down 34.4per cent in the fourth quarter.

The company had said it expected brand licensing revenues to remain steady or slightly improve after the release in August of a sequel to "The Angry Birds Movie", its successful 2016 venture into the film industry.

Rovio said it expected the decline in its brand-licensing revenue to continue, by approximately 50per cent year-on-year in 2020.

Its games revenue and gross bookings both hit new records, at 66.7 million euros and 67.0 million euros, respectively.

But so-called user acquisition costs, such as the cost of getting games displayed prominently in app-stores, jumped 18per cent to 27.5 million euros, or 41.3per cent of games revenues for the quarter.

The company said acquisition costs had been lower so far this year which, coupled with the planned cost savings at Hatch, should lead to an improvement in adjusted operating profit in 2020. It did not give revenue guidance for this year.

Rovio proposed a dividend of 0.09 euros per share, similar to last year.

(US$1 = 0.9163 euros)

(Reporting by Anne Kauranen in Helsinki and Boleslaw Lasocki in Gdansk, editing by Mark Potter, Kirsten Donovan)

Source: Reuters

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