Angry Birds Maker Rovio Goes Splat in Market Debut -- at Least Compared to Roku

The Finnish company has yet to prove they can keep growing the Angry Birds brand.
By Annie Palmer ,

Shares of Rovio, the company behind the "Angry Birds" franchise, took flight on the Nasdaq Helsinki exchange on Friday but didn't manage to stay aloft for long.

Rovio priced at €11.50 ($13.57) per share -- the high end of its price range -- and began trading at €12.20 ($14.40) per share, a 6% pop from its initial offering price. Later in the morning, the stock surged to a high of €12.34 ($14.56) per share, before sliding below its IPO price to €11.48 ($13.55) per share. 

The IPO values Rovio at approximately $910 million, which is less than half the $2 billion the Finnish company had reportedly been hoping for. Rovio management has said that they plan to use the capital raised from the IPO to fuel deals in the gaming industry -- a market that Rovio chairman said is ripe for consolidation. 

Investors may be tempted to compare Rovio to Roku (ROKU) - Get Report , the streaming service that skyrocketed 68% in its first day of trading on Thursday, but its story is decidedly different from Rovio, according to Kathleen Smith, manager of IPO-focused exchange-traded funds at Renaissance Capital. The companies operate in very different spaces -- Rovio produces content, while Roku distributes it. Smith also noted that while Roku has quickly risen to become the leader in streaming, Rovio has a steeper barrier to entry in the video gaming market.

"Rovio has to expand its creative products that give it sustainable revenue over time, while the key to Roku is the fact that they're taking other people's content and delivering it well to consumers," Smith said. "That's a different kind of [price-to-earnings] multiple."

Angry Birds, released in 2009, has been Rovio's cash cow for much of the company's 14-year history. The popular mobile game has been downloaded at least 3.7 billion times and has since been spun off into a successful clothing and movie franchise. Rovio is set to debut a sequel to the 2016 Angry Birds movie in partnership with Columbia Pictures in 2019. 

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Growing Angry Birds into a brand has helped Rovio lift its previously sagging revenues. In 2015, Rovio revenue slid to €143 million ($169 million), down from €160 million ($189 million) in 2014. After the Hollywood film release, as well as booking several licensing deals, sales picked back up to €191 million ($225 million) in 2016. The company is said to be on track for continued growth in 2017.

Rovio also underwent a series of management changes and cost-cutting measures, including laying off a third of its staff in 2015, that have helped turn around its top line, according to Smith. 

With the IPO behind them, Rovio will have to continue to show that it can grow revenues will scaling its business beyond North America and Europe -- two regions that fuel a large share of its sales, according to the company.

"This is a hit-driven business," Smith explained. "They have to be good at introducing other games, otherwise, if you look at revenue, it could trail off. Any chances of keeping it up will be tied to strong user growth and the brand." 

Rovio has a slightly stronger brand than most gaming companies, Smith noted, but that doesn't guarantee that they'll be able to avoid the pitfalls experienced by rival gamemakers, including social video game company Zynga (ZNGA) - Get Report , which went public in 2011. Since then, Zynga has had a wild ride on the public markets and, as of Friday afternoon, was trading at around $3.70 per share, which is more than half its $11 IPO price. The company had benefited from its widely popular Facebook Inc. (FB) - Get Report game FarmVille, but has struggled to follow that with other successful titles. 

Another Rovio competitor, King, which is the company behind Candy Crush, was eventually bought by gaming giant Activision Blizzard (ATVI) - Get Report for $5.9 billion.

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