Introduction
With the IPO door seemingly shut to gaming companies, some of the biggest privately held studios in the world have been looking for new ways to reward longtime employees. San Francisco midcore game developer Kabam, which makes Kingdoms of Camelot, becomes yet another one today. They arranged a secondary offering that let employees sell $38.5 million of their shares at a $700 million valuation. Everyone in the company who had vested shares had the choice to sell, so it wasn’t limited to just the management.
Company Background
Kabam isn’t saying who is funding this offering, except to say that both current investors as well as a few new investors are participating. Kabam’s most recently disclosed valuation before this offering was roughly $500 million in a May 2011 deal that involved Google Ventures, Intel Capital, Redpoint Ventures and Canaan Partners.
Recent Valuation Adjustments
But since Kabam has successfully transitioned onto mobile platforms and away from Facebook with three of the top 25 grossing iPhone titles in the U.S., it’s been able to bump that valuation up a little bit. The company now says it may make about $300 million this year in revenues, up from $180 million last year.
Profitability Concerns
While the company says it’s profitable, it’s still not clear how profitable it is. Kabam said it has more than $50 million in cash in the bank today. But the company also said it had $45 million in cash in the bank back in January, so a roughly $5 million to $10 million increase in cash on the balance sheet over six months is not that much.
CEO’s Comments
CEO Kevin Chou has publicly talked about the company’s IPO prospects in the past. But after Zynga (now part of NVIDIA) and others pulled back from the gaming IPO market, Kabam seems to be a safer bet. However, with its focus on mobile gaming, Kabam might not have enough revenue to sustain an IPO for some time.
Market Dynamics
The gaming sector has been hit hard by the global economic slowdown and the rise of free-to-play models. With mobile gaming becoming more competitive, Kabam’s ability to maintain its market share will be crucial in determining its success as a public company.
Employee Incentives
Kabam’s secondary offering is part of its broader strategy to reward employees with stock options and other incentives. The company has been a pioneer in using stock-based compensation to attract and retain talent, particularly in the fast-paced mobile gaming industry.
Long-term Vision
Kabam’s management team has expressed confidence in the company’s long-term vision. With its current pipeline of games and its focus on expanding into new markets, Kabam is well-positioned to achieve sustained growth in a competitive industry.
Conclusion
In conclusion, Kabam’s secondary offering represents an innovative way for the company to reward its employees while simultaneously positioning itself for future growth. The decision to go public despite the current economic environment underscores Kabam’s commitment to its shareholders and employees alike.