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Konvoy Ventures is a thesis driven venture capital firm focused on the video gaming industry. We invest in infrastructure technology, tools, and platforms.

AppLovin (IPO)

AppLovin IPO, challenges for emerging markets

AppLovin IPO

AppLovin is the latest [mobile] gaming company to explore going public. AppLovin has been rumored to go public for years, and now it seems like we’ll finally be getting a look under the hood of the most popular mobile gaming companies that does not even have an app. They are the latest in a growing list of gaming companies who have either gone public or seeking to go public: Unity, Corsair, Skillz, Roblox, etc.  

AppLovin’s mission is to “entertain the world with the best mobile games”. Their most recent public valuation was at $2B but that was back in July of 2018 which was around the same time they started their media division, Lion Studios, to work with developers to promote and publish apps. They’ve also moved into the game development space with acquisitions of Machine Zone, Belka Games, PeopleFun, and Firecraft Studios. They are expecting to generate $1.5B in revenue in 2020 (CNBC).  

AppLovin has experienced strong growth as they are now at 540M DAUs, they reach 2B+ devices per month, 90% of mobile game devs work with them, and 1M ads are served per second by its AppDiscovery platform (yes, per second).  

Unity’s market cap is currently ~$26B, trading at ~37x annualized revenue of $700M. While they are not direct competitors, their business models are comparable. If AppLovin trades in the same range of 20-40x revenue, then AppLovin’s valuation should be around $30-60B in this IPO.

Gaming: Challenges and Opportunities in Emerging Markets

Back in December 2019, Newzoo was expecting 2020 to be “one of the slowest-growing years in terms of game revenues” and for emerging markets to be the highlight of growth. That was of course revised up as people turned to gaming during the pandemic, but we shouldn’t overlook the opportunity that emerging markets will still provide.  

Around 40% of people in India have access to the internet and mobile phone internet adoption sits around 32%. Similarly, internet adoption across Africa is 39% and smartphones account for roughly 33% of all connections (according to GSMA Intelligence). Growth in these regions have been impressive over the past 5-10 years, which is exciting for the gaming industry as it opens up new potential users. But significant challenges remain.

One of our founders recently shared an interesting article with us on the issue of one device households in India and how users need to share their device time between family members (which has had negative impacts for girls in particular during this pandemic). Not only do users have less time on their device, they may need to delete and re-download apps to conserve space on the shared device. This poses interesting and difficult challenges for consumer applications (and games) that want to reach these users, from reducing app file sizes to rethinking the user experience.

Having a smartphone is not the only barrier to entry, there needs to be sufficient access to the internet, nearby data centers (servers for multiplayer), and appropriate payment infrastructure (most users don't have access to western credit cards). These barriers are all opportunities for innovation in these regions.

Billions of dollars are being poured into data centers and telecom across the world (including Asia, Latin America, and Africa); the infrastructure will be there. Companies will find success if they can help new and existing games reach and delight consumers across these regions.