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Rovio's Q1 revenues hold steady at €65.7 million, but profitability is rising

Operating profit up 73% to €9.2 million and Angry Birds 2 is growing as mobile firm prepares for rising user acquisition costs

Finnish mobile giant Rovio has released its financial results for the first quarter of 2018, and things are starting to look up.

Overall revenues only took a minor dip of 0.9 per cent when compared to the same period last year, dropping from €66.3 million to €65.7 million. Revenues generated by Rovio's games business remained relatively flat at €56.8 million, compared to €56.6 million in Q1 2017.

More promising is the firm's operating profit, which rose by 73 per cent year-on-year to €9.6 million - a significant improvement on last year's €5.6 million.

Angry Birds 2 remains a key driver behind the firm's business, with booking up 8.5 per cent year-on-year. In fact, CEO Kati Levoranta said the game achieved record revenues during the quarter, and that the first quarter overall has been "in line with our expectations".

However, with interest in the original Angry Birds Movie dying down two years after its release (as you would expect), the ability to capitalise on it is also dwindling. As such revenues from Rovio's brand licensing department decreased by 8.8 per cent to €8.9 million, but the recently announced sequel should rectify this next year.

Rovio also spent less on user acquisition in the first quarter, with investments dropping from €16.4 million to €14.6 million. This accounts for 25.7 per cent of the Games division's revenue, down from 29 per cent last year.

By the end of 2018, these investments are expected to reach around 30 per cent of the revenues generates by Rovio's games business, with the company noting that the cost per acquired user has "risen significantly" over the last year.

In a statement, Levoranta added: "The cost for digital marketing in the industry continued to be high during the first quarter. We strive to grow our revenues and increasing investments in user acquisition through improving the performance of our key games and efficiency of our marketing."

Rovio's outlook for 2018 remains unchanged. The firm expects to see revenues of between €260 million and €300 million - not too different from the €297 million achieved in 2017. The company currently has ten new titles in development, one of which is now in soft launch.

The revenues from brand licensing are expected to decline by 40 per cent over the course of 2018, with the division focusing on building up to the next movie's release next year. Consumer product revenues for 2018 are expected to match that of last year.

Finally, Rovio has pledged to invest €10 to €15 million into mobile game streaming service Hatch, a venture by former employees of which Rovio owns 80 per cent. Levoranta intends to continue exploring new platforms, pointing to the recent release of Angry Birds on Facebook Instant Games and a partnership with Magic Leap as prime examples.

Said Levoranta: "We continued to execute our games as a service strategy, which means that while we continuously acquire new users, we continue to deliver new updates, contents and game events to our existing users to retain them in our games longer and to improve conversion of in-game purchases that e.g. enable access to new virtual goods or faster progress.

"Game development requires continuous innovation and passion: Our creative, multi-talented teams produce compelling gaming entertainment and I believe that Rovio has the talent, expertise and passion required to stay at the leading edge of games development."

Rovio has had a rough start to the year. Despite posting some of its best financial results ever in 2017, investors were disappointed by underperforming game launches and the fact Rovio does not expect a significant increase in revenues over last year. The Finnish firm's stock value plummeted and it was compelled to close its London studio just one year after it opened.

There has also been a shake-up within the firm's management, following the departure of long-serving head of games Wilhelm Taht back in March. Last month, investor relations boss Rauno Heinonen also left the Angry Birds firm, less than a year after he joined.

Rovio has even proposed pay cuts for its chairman and owner to alleviate investor concerns.

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