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#1: India bans 118 more Chinese apps. What now?
Back in late June — as China-India tensions were rising because of border skirmishes — India banned 59 Chinese apps on the basis of national security. At the time we noted that the gaming industry got by easily but more bans are possible. On September 2nd, India banned 118 more apps, which included top games like PUBG Mobile (#1 grossing game in India) and Mobile Legends (#10). Here are some takeaways:
- PUBG Mobile was extremely important to India's gaming ecosystem (~200 million downloads) and will leave a void. Sea Limited's / Garena's Free Fire is probably the best positioned to fill the void, but expect a burst of competition. For example, nCore (an Indian development team) just announced Fearless and United: Guards (or "FAU-G", note the acronym similarity), which looks like a pro-India version of PUBG. Also, the entire esports and streamer market will need to pivot, which is potentially easy for content creators but takes more work for businesses and teams.
- One of the things Chinese games companies want most is international expansion, but geopolitical tensions may very well continue to pose headwinds… in India and beyond. More bans are possible.
- There's tremendous upside for the Indian game development market, and nationalist moves like banning foreign games make the odds of home-grown successes even more likely. Of course, even though India is pushing a nationalist agenda — as another example, just look at how many US tech titans are aligning themselves with Reliant Jio (an emerging gatekeeper) — that doesn't mean India shuns foreign investment.
All in all, India's gaming future looks brights no matter what it does or doesn't ban, and this banning ordeal simply leaves significant upside for others to capture. China's loss will simply become someone else's gain
#2: Skillz is going public via a SPAC
We took a deep look into Skillz a couple weeks ago, so there's no need to rehash everything. At a high level, Skillz is a platform that allows any skill-based mobile game to convert itself into an esport with real money winnings.
However, unlike typical esports-friendly and male-dominated core games like League of Legends or Dota, Skillz prides itself on opening up the top of the funnel by making esports experiences accessible to the casual mobile gaming audience (with a focus on females) through a portfolio of casual mobile games across a variety of genres.
According to its recent SEC filing, the company appears to be doing just fine. In the last quarter, MAUs were 2.6M (+88% YoY), GMV spiked 101% to $413M, and revenue jumped 111% to $59M (~14% take rate). 34 games on the Skillz platform had >$1M in GMV in the first half, and even though the company is burning cash today the business projects 30% long-term adjusted EBITDA margins.
Momentum is strong and the team does a great job piecing together a pitch, but there remain questions. Big TAM numbers look fancy, but how many "casual" players actually want to compete for money? How many developers are interested in building on this platform, and how many have found success versus failure? What's the customer concentration within the top games? How does Skillz expect to double its take rate?
There are a lot of assumptions to poke through in order to believe Skillz's projected growth numbers. Based on hesitations and critiques I've seen it's worth taking the time to dig a layer deeper.
The SPAC itself (called Flying Eagle Acquisition) is raising nearly $850 million in cash at a $3.5B pre-money valuation. That means public market investors will wind up owning approximately a quarter of the business once the transaction finalizes.
I believe this is the first gaming-related SPAC, and given the cons of traditional IPOs (primarily how big day-1 pops mean companies leave a lot of money on the table) I doubt it will be the last. (Note: this explanation of SPACs is the best I've seen.)
#3: CD Projekt Group's reports financial results
Over the first half of fiscal 2020, CD Projekt's sales jumped nearly 70% YoY and net profits nearly tripled as a result. The company is still riding the tailwind that The Witcher Netflix show provided, but it's also benefiting from its games launching across new platforms.
For example, The Witcher 3 sold well on the Switch this year, GWENT debuted on iOS in late 2019 and on Android earlier this year, Thronebreaker: Witcher Tales performed well on the Switch, and Thronebreaker also launched on mobile.
It's great to see that The Witcher 3 still has legs (although likely fading at this point), and the strategy of porting games over to mobile appears to be modestly working. The GOG.com platform is also performing alright but doesn't move the needle much.
Of course, all eyes are on Cyberpunk 2077, which now releases in November and faces extremely high expectations. Topping those expectations will be challenging, but early reviews seem positive, which is a good sign. There's also already a Cyberpunk Netflix anime in the works, which is a testament to how much people trust CD Projekt to wow consumers.
CD Projekt remains an extremely lumpy business, and the performance of a game like Cyberpunk 2077 will dramatically affect how the company is perceived and valued.
Management seems to recognize this — hence the push into mobile and launches of games like Thronebreaker — but it will take years to better diversify the product suite. That said, the company has roughly a year's worth of revenue in cash on its balance sheet, and winners tend to win. If the past is any indicator of the future, then CD Projekt will continue to excel.
Master the Meta is a newsletter focused on analysing the business strategy of the gaming industry. It is run by Aaron Bush and Abhimanyu Kumar. To read this week's entire meta, visit www.masterthemeta.com!