Some of you might have heard about the recent acquisition of Harpan LLC. by Zynga. Forbes have reported it last week and so have Busienss Insider and PC Mag. Reading these articles, you can’t help but notice the surprise of the reporters as they write about the amount of money spent to buy a 2-person company with 4 versions of the same game that was not even invented by them. Is Zynga out of their mind? Actually – it’s quite the opposite.
Zynga doubling down on ads
If you have been reading Zynga’s financial reports you might have noticed an interesting trend also highlighted in another post we published on this subject. Zynga has been depending more and more on ad revenues. In 2011 only 6.5% of their revenue came from advertising while in 2016 this number grew to 26.1% or $194M in absolute numbers. We will soon how this relates to the acquisition of Harpan.
The macro trends all point in the same direction
This shift in Zynga’s strategy might be a smart move in response to macro trends in the industry. There is a concensus in market forecasts provided by different intelligence companies. eMarketer projected that ad spending worldwide will increase from $101B in 2016 to $195B in 2019. So far their projection is coming true.
More recently AppAnnie projected that the amout of reveneu mobile game app companies are generating from in-game ads will increase from $21B in 2015 to over $50B in 2020.
The increase in ad spending is exceeding the growth in mobile users and creating inflation in two important KPIs of the industry:
- CPI -cost of install / bringing a new user
- ARPU and LTV from ads
Harpan is part of a trend – acquisition of ad driven app companies
So if Zynga is indeed following the trends and made a strategic decision to base more of their business on advertising the acquisition suddenly makes a lot of sense. Sources in the industry suggests that Harpan was making almost all of it’s revenue from ads. These revenue streams are on the rise due to the mactro trends and the current worth of Harpan could double in 3 years due to increase in ad revenue monetization opportunities.
But Zynga is not alone in reading the market and pretending for the change: in 2016 we covered a peak of funding and M&A deals targeting companies with a strong focus on ad based monetization. You can add to that list the acquisition of Outfit7 for $1B and the acquisition of Ketchapp games by Ubisoft. I’ll not be surprised if we will see even more activity (funding and M&A) around ad-driven mobile game companies in 2017. Some companies to follow are:
- Gram Games