Angry Birds maker Rovio dives after ‘brutal’ report

Profitability drop is in line with strategy to expand in games, chief executive says

HELSINKI— The company behind Angry Birds lost a fifth of its market value on Thursday after investors saw its first set of earnings since an initial public offering (IPO) just two months ago.

Rovio Entertainment Oy’s thirdquarter earnings report delivered what FIM analysts called a “brutal disappointment,” sending the shares down more than 20 per cent.

FIM said the bad performance was “caused by a strong increase in useracquisition investments and clearly softer revenue than expected.” Rovio spent € 22.2 million ($33.4 million) in an effort to draw in new users for its games last quarter, or more than four times the amount it invested a year ago. That pushed down profitability, with Ebitda falling 29 per cent to € 6.1 million. Ebitda as a percentage of revenue fell to 8.6 per cent from roughly 17 per cent.

Thursday’s sell-off left one Rovio share costing as little as € 9.36. At its Sept. 29 IPO, the shares were priced at € 11.50. Trading volume in the stock was more than four times the threemonth daily average in Helsinki.

Chief executive officer Kati Levoranta said the drop in profitability was predictable and in line with the company’s strategy to expand in games. The payback time from the investments is in about eight to 10 months, she said. Revenue and Ebitda are still seen increasing significantly this year.

Analyst recommendations compiled by Bloomberg suggest the company’s shares will recover. Of the three analysts listed, all are advising clients to buy Rovio shares. And their average price target indicates Rovio shares could rise more than 40 per cent over the next 12 months.