Angry Birds maker Rovio shares spike on rising profits

Rovio, the firm behind popular smartphone game Angry Birds, has more than doubled its third-quarter profits beyond analyst expectations.

Its share price almost 13 per cent on the news, despite the company warning it would need new games to drive further growth.

The figures

For the three months to September, the Helsinki-based firm reported adjusted earnings before tax of €10.2m (£9m), up from €4m a year ago and trouncing consensus estimates of the same number as collated by S&P Global Market Intelligence.

This was largely powered by its update to the Angry Birds brand, Angry Birds 2, taking in a 68 per cent increase in gross bookings year-on-year to €30.8m.

Revenue, however, slightly missed expectations of €71.1m, as Rovio reported overall sales of €71m for the quarter. This represented growth of just 0.5 per cent from the same period in 2017.

The company also narrowed its outlook for the rest of 2018, predicting group revenue to fall within €280m to €290m, with profitability expected to be 10 to 11 per cent of that number. This was scaled back from its previous guidance of between €260m and €300m, and profits of between 9 to 11 per cent.

Why it's interesting

Rovio has been hit hard by its dependency on the Angry Birds branding in recent months, and it continues to be responsible for the majority of the company's profits to date.

The company's shares crashed 50 per cent in February after it predicted sales could fall this year, having achieved 55 per cent revenue growth in 2017.

Rovio plans to release at least two new games next year, with another 10 projects in the pipeline, in order to keep up with stiff competition in smartphone gaming from the likes of Niantic's Pokemon Go.

However signs are beginning to appear of that divergence from Angry Birds, as Rovio stepped up investments into its 80-per cent owned subsidiary Hatch, a Netflix-style streaming service for mobile gaming.

Rovio said today Hatch has entered into the beta testing phase in the Nordics, the UK and Ireland, which left analysts issuing murmurs of approval on the company's future.

What the company said

Rovio chief executive Kati Levoranta said:

"While we reiterate the importance of continuously improving our live games with the goal of increasing their revenue over time, it is clear that we need new games in order to accelerate growth.

"Consequently, we are increasing the number of new internal and external game projects for the next and following years."

"The costs of acquiring new users were somewhat higher than in the previous quarter. In order to keep the payback time of these investments within the targeted 8-12 months range, the company invested less in user acquisition this quarter which also contributed to a better operating profit."