FOCUS: Mail.ru to control Deus Craft soon, sees mobile games as growth leader

By Yekaterina Yezhova

MOSCOW, Oct 19 (PRIME) -- Russia’s Mail.ru Group intends to close in October an acquisition of Deus Craft, a developer of mobile games, which the tech giant sees as the main growth driver for the whole games market. Analysts liked the move as games contribute almost a half to the group’s revenue.

“Consolidation of studios is one of the company’s tools to reach the goal of joining the world’s top 25 games producers and truly become a global player,” ITI Capital said in a note.

In an earn-out deal, MY.GAMES, an international gaming division of Mail.ru Group, will own a 51.16% stake in Deus Craft for an upfront payment of U.S. $14.1 million and a deferred payment of up to $35 million payable in April 2021, with the maximum payout available only if the studio reaches monthly revenue of about $15 million by the end of March 2021.

Veles Capital analyst Artyom Mikhailin said Mail.ru Group would more likely pay for the asset from the money raised through a placement of $400 million convertible bonds and $200 million new global depositary receipts (GDRs).

“With the target reached, the studio could generate some 3–3.5 billion rubles of revenue per quarter, which accounts for 14–16% of the quarter revenue of the group and 30–40% of the games division’s revenue for January–June,” the analyst said in a research.

“We think that strengthening of the games segment is fully in line with its strategy and will boost the company’s results in the long-term. We also believe that the looming probability of new (pandemic) restrictions justifies the bet on video games in the short-term.”

Mail.ru Group said it will consolidate Deus Craft into its July–September report due on October 26. “The consolidation may exert a slightly negative impact on EBITDA of the games division in 2020, but the margin should rise as the studio and its projects are maturing,” Mikhailin said.

According to ITI Capital, the games segment will support the results like it did in April–June. Recovery of the Nasdaq index will spur up interest to the Russian IT companies.

The tech giant’s GDRs gained 28.7% since the beginning of the year and closed at $28.70 on October 15 on the London Stock Exchange. They advanced by 36% since the beginning of its home listing in early July, closing at 2,265 rubles on the Moscow Exchange on October 15.

VTB Capital analyst Vladimir Bespalov liked the deal and said the games segment is one of the key drivers for Mail.ru Group in the coming years and a good opportunity due to the large addressable market.

“We note that games generated some 40% of Mail.ru’s revenues in April–June. The deal fits well Mail.ru’s strategy to develop its gaming business, both organically and through targeted acquisition, with the focus on mobile games and increasing international exposure. In particular, the company plans to generate over 80% of revenues from mobile games and over 80% from international markets by 2022, both shares stood at 69% in 2019,” he said in a note.

Mail.ru Group said that Deus Craft’s current operating product, Grand Hotel Mania, was a success in the U.S. where it earned half of its total September revenue.

MY.GAMES CEO Vasily Maguryan told PRIME that the mobile games segment will certainly remain the locomotive of the country’s games market in 2020 with a 30% rise. “According to our estimates, the local games market amounted to 120.4 billion rubles in 2019. It’s still early to give any 2020 outlook due to multiple extraordinary factors,” he said.

“With 74 million gamers and revenue of U.S. $1.85 billion, the Russian market is the largest in Eastern Europe and the leader by audience in Europe. But by revenue, Russia is Europe’s sixth and the world’s 13th.”

The top executive said the pandemic had proved that games is the most available entertainment, with which one can communicate with friends and have fun.

“During the lockdown, we saw active growth on the games market, especially in the segment of PC games. For example, among the products of MY.GAMES, Conqueror’s Blade was the champion among PC games with a 203% jump in the number of registrations per month at the peak of the lockdown in Western Europe, or a 167% rise on all territories,” Maguryan said.

“The time spent on games playing – the number of sessions and their duration – also increased significantly. According to our calculations, the time of playing extended by 15–40% in comparison to the previous indicators. Another trend we’ve noticed was involvement of an absolutely new audience into games.”

Maguryan said the trends will stay in force so long as the pandemic bans and restrictions are in place.

“According to our research, the audience of mobile games is equally split between men and women, and the former opt for competition and tactics genres and the latter prefer casual games. In PC games, 58% of players are men with the most popular genres being shooters, racing, military equipment simulators, strategies, and action. On consoles, our players choose football simulators, third-person action, and shooters,” the CEO told PRIME.

(77.9644 rubles – U.S. $1)

End