A Dark Horse Emerges
An unexpected buyer will take over the mobile gaming assets from AppLovin, so the adtech powerhouse can focus on its core business.
Dear Readers,
Tesla had its worst trading day since 2020 yesterday as delivery expectations were slashed. Meanwhile, social network X had multiple outages that affected over 400,000 users amid reports the platform was subject of a large-scale cyberattack and Starlink saw a USD 7bn contract cancelled and is set to miss out on another USD 22bn investment both by Mexican business mogul Carlos Slim after Elon Musk retweeted allegations of Slim being tied to drug cartels. Also, the friendly Canadians with their province Ontario canceled their Starlink contract.
Not a good week for Elon Musk. It looks like the Force might be awakening. Finally.
On to this week’s musings.
The cat’s out of the bag - UK based gaming studio Tripledot Studios emerged this week as the buyer of the entire mobile gaming business of AppLovin. For a total of USD 900m, studios and games that reportedly bring in USD 1.2bn in revenue annually will change ownership. Industry thought leader Matej Lancaric summarized it perfectly why Tripledot might just be the perfect home for AppLovin’s gaming business.
To call balls and strikes on my end: when I first wrote about this deal, I did not have Tripledot as a suitor on my bingo card and had instead floated the name Moon Active. I got that one wrong.
What I did get right was the notion that it wasn’t an investor or financial buyer, but a strategic buyer. The hint was in the deal terms: 400m of the full amount is paid in buyer’s stock - meaning AppLovin will hold shares in a new company worth 400m. So it needed to be a buyer where AppLovin felt that they have further upside on their holding and that there is at least a mid-term path towards liquidity - both of which Tripledot offers.
Let’s explore what avenues Tripledot could pursue.
IPO
If the reported numbers are accurate, Tripledot currently makes roughly USD 475m in revenue. Adding the topline from AppLovin’s gaming business, total revenue will sit somewhere between USD 1.6-1.8bn. That puts them within striking distance of other publicly traded gaming companies like Ubisoft and Playtika (both sit between USD 2-2.5bn in revenue). Here’s the catch though - both of these companies trade with a multiple of less than 1, meaning their total market cap is less than their annual revenue. The public markets are rewarding scale and accelerated growth. Tripledot seems to have the latter going for it, but at the combined revenue levels it still is a sub-scale player in the eyes of the public markets. This road seems to be less likely - for now.
A private equity buyer
Consolidation (see above: scale) is the name of the game in the current market environment and there is a lot of PE money on the sidelines waiting to be deployed. So who could come in and buy Tripledot for somewhere in the USD 2.5-5bn region? Savvy Games comes to mind, but if they press forward with their rumored acquisition of Pokémon Go for USD 3.5bn, it is unclear how much deeper their pockets really are. I think the asking price puts this outside the reach of MTG or Stillfront as well. CVC Capital Partners already purchased Jagex and may be on the lookout to get more exposure to the broader gaming ecosystem.
A strategic buyer
To me, this is the most obvious route right now. And to me, two names especially come to mind: EA and Take-Two Interactive. Hear me out.
Let’s start with EA. Last September, the company announced the bold goal of reaching 1 billion users in the next 5 years. Getting there hasn’t been going exactly to plan. If EA is serious about reaching the masses, it can’t do it without a strong mobile gaming portfolio. Tripledot could be a missing puzzle piece to accelerate that journey. Additionally, Tripledot would give EA some serious expertise on the marketing and user acquisition side that would breathe new life into EA’s existing mobile games portfolio and open up pathways of growth for its existing titles. I like the synergies that are here. EA also said that they are actively looking at M&A opportunities to unlock growth.
Take-Two Interactive is a seasoned acquirer and with the likes of Zynga, Social Point, and others already has a strong mobile portfolio. The company definitely has the cash to do this and could look to further strengthen its mobile footprint against its AAA segment for PC and console.
Out of these options, I’m personally most intrigued by the idea of EA acquiring Tripledot. I think the path to IPO is a tricker one due to the lack of scale, and there could always be a dark horse on the private equity side.
If I had to bet money, I’d put it on a strategic buyer - but don’t take my advice for it because, see above, I got Tripledot wrong as well.
There’s a lot going on this week, so we’ll be back tomorrow already with a deeper look into Discord and the company’s rumored IPO that could shake up the entertainment and AI markets, as well as rival Reddit’s IPO as the fastest growing social media and content platform. If you haven’t already, sign up below to not miss out.