It looks like you're new here. If you want to get involved, click one of these buttons!
Funcom is reeling from the disaster of "The Secret World". I do a bit of investing for a living, so I hoped to highlight some of the less obvious warning signs from the investor relations section of their website. Here are some of the more interesting tidbits I found:
(Rules: Unless the company says something happened, it did not. Extrapolations are based not on guesses but on what is represented by the company (aka what can get a member of the BoD sued). That is the standard I'm using for this. Logical deductions may be made.)
Desperate for money due to burning through cash:
1) Issued 60 NOK (10 million US dollars) of stock June 20, 2012;
2) Converted over half of their convertible bonds into cash at a company choking interest rate of 10% (8.7 million US dollars)
3) Despite this conversion, at the end of the quarter they still only had 12.2 million in cash left. (In other words, that is why they issued more shares in June, because even after the conversion of the bonds for 8.7 million they only had 12.2 million left over. Remember this is the company that had cash reserves of like 50 million post-Conan launch)
4) Funcom is burning through about 7 million dollars in cash per quarter as by all metrics losses are accumulating. By Q3 2012, no matter what type of spin Funcom puts on it, I will be able to hazard a guess as to when the company will go bankrupt. They have another 6.3 million in convertibles available, but unless the stock price improves they cannot "issue" their way out of this. Given no new sources of income, it is highly unlikely that anyone save for a purchaser will lend them more money.
Conclusion: as of the end of Q1/2012, Funcom had realistically 28.5 million dollars in cash available outside earned revenue. Beyond that, The Secret World and other properties must fund the company. There is no other way.
Absolutely no other real sources for revenue:
1) 2.2 million US in Quarter 1, 2012: That is across all games including F2P offerings.
2) Their F2P intiatives are earning less than 500,000 a quarter. About a 30% reduction in revenue from the previous year. I don't think Fashion Week Live is going to save the day.
Things I did not hold against the company:
1) 22 million in interest bearing debt. I don't care about the amount: I care about the rate. Other than the convertible bonds, their other offerings were around 5-6%. Not very significant.
2) Additional costs surrounding the launch of TSW: This is obvious. What I will be looking for is:
a) Total sales
b) Margin on sales (they had better provide the digital margins, but I doubt they will, because the insane margins digital downloads provide will cover up some other nasty financial blows)
c) Impairment charges: I could care less what Funcom thinks TSW is worth. They reduced the IP value of AoC 95% since its launch. I expect similar things from TSW.
THEIR RECENT PRESS RELEASE:
This has received by far the most press. Here are my thoughts:
The key facts and numbers were: 1.050 million client sales first year, 280,000 average subscribers, ingame store bringing in 35% of subscription revenue.
1) When any company says that it is not likely that either scenario will be met, you can safely take that at their word.
2) When a company further says that a "possible" scenario is that sales will be less than half of what occurred with AoC, you can easily and safely infer that they are hoping for sales closer to 1/2 than 1/3. If the company is really badly off, that could be used to justify being closer to 1/2 than 1/4. So what is optimism here? 350,000 to 500,000 in sales. I cannot tell which yet.
3) "It should be noted that the sales amount in the "Conan-like" scenario is significantly higher than for the game "Age of Conan", due to the assumption of better retention implemented in the scenario."
This is the most COMPLICATED statement they provided. Age of Conan sold 1.05 million copies. So when they talk sales, are they really talking revenue? They have never mixed those terms interchangeably. If this is a particularly misleading way of also discussing subscription numbers, well, shame on them.
4) "First indication of churn is more positive than for Age of Conan" Funcom is ambigious as to whether this churn relates to their "conan-like scenario" or whether or not they are tracking churn compared to Age of Conan directly. Age of Conan had probably the most precipitious churn of any MMO in the history of gaming in May-July 2008. If the churn is only better than that, it is not going WELL AT ALL.
5) "The in-game store is performing as expected": This simply means that in-game store is pulling in about 35% of subscription revenue. Doesn't mean a lot unless you have a healthy subscriber base.
If they are on pace based on previous models (AoC sold 80-90% of its units within the first 3 months) then as of right now they have sold 80% of 350,000 - 500,000 (so 280,000 to 400,000) with an average subscriber base of (over 1 year) of something in between their healthy retention rate scenario of 37.5% and their poor retention rate of 25%.
Needless to say, 30% of 350k, or 500k (whichever it may be projected to be), is not good. More to come in a few weeks.