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

HELSINKI (Reuters) - Quarterly profit at “Angry Birds” maker Rovio Entertainment plunged 96% as the mobile games company was hit by the slower-than-expected take up of its 5G gaming platform Hatch and higher marketing costs.

FILE PHOTO: A company sign and an Angry Birds game character are seen at the Rovio headquarters in Espoo, Finland March 13, 2019. REUTERS/Anne Kauranen/File Photo

Shares in the Finnish company slumped as much as 22% after it said it was evaluating “strategic alternatives” for Hatch, while also looking to make annual cost savings of 6 million euros ($6.6 million) at the 80%-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.[ASN0002VT]

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 ($220,000) from 5.3 million euros a year earlier, while sales dropped 1.4% to 71.6 million euros.

Brand-licensing revenue from Angry Birds branded toys and other products declined 21.1% year-on-year to 24.3 million euros in 2019 and was down 34.4% 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 50% 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 18% to 27.5 million euros, or 41.3% 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.

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