Mobile Gaming – Declining empire?

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Forward indicators for games look tough.

• Gaming had a good 2017 on mobile devices, but the data is pointing a rapid changing of the guard in terms of the services that generate the most income for developers.
• Data from Sensor Tower (see here) indicates that games were by far the biggest revenue generator for developers in 2017, but the current trends are pointing to a very different picture for 2018.
• In 2017, revenue per active iPhone in the USA grew to $58 per year or $4.83 a month with games being by far the biggest segment.
• Spending on games made up 62% of the total and grew at 13% well below the average of 23% YoY.
• Entertainment was the next biggest category but only making up 7.5% but it is growing at 57% YoY.
• This is pretty much the picture that we have seen in revenue generation by apps for the last 3 or 4 years but the forward indicators are pointing to a very different picture.
  • First, Supercell & King Digital: have been the leaders on the Apple app store for years and their offerings have historically been very stable.
  • However, during 2017, Supercell ran into trouble as its offerings started to age which it failed to refresh.
  • This resulted in a bad set of results for 2017 as well as a big decline in the app store rankings.
  • I also think that King Digital is having problems as its user numbers have declined since its acquisition by Activision Blizzard and its games are also falling in the app store rankings (albeit not as bad as Supercell).
  • Second, app store rankings: The leader in this space is App Annie and its charts paint a very different forward looking picture to the historic data from Sensor Tower.
  • On the iOS app chart, games now make up just 4 out 10 of the top 10 slots with Supercell nowhere to be seen in the top 10.
  • Media Consumption (or entertainment) services now make up 5 out of 10 top places with 5^th place going to Tinder which doesn’t fall into either of these categories.
• These two observations point to a much more even balance of revenue generation between the Digital Life segments of Gaming and Media Consumption in 2018 compared to 2018.
• A degree of this will be due to purchases being made on smartphones that are then used on TVs but this is a strong indication of a change in user habits more generally going forward.
• Consequently, I expect the Media Consumption to be the fastest expanding in 2018 when it comes to Digital Life which is also pointing to a difficult year ahead for games developers.
• In China there is no sign of this yet as Tencent had a great year in 2017 and still occupies 4 out 10 of the top places in the Apple App Store in China.
• Hence, from an investment perspective, Tencent still looks to be doing well and the problems at Supercell are unlikely to be noticed in its numbers.
• However, the likes of Rovio look set to continue their decline leading me to still think that there is still no bargain to be had.