Sunday, November 07, 2004

Earning watch: JAMDAT Mobile

You may not have heard about JAMDAT Mobile Inc, it could be the one to watch after market close on Monday, Nov 08 when it reports results. The company is based in Los Angeles and went public last month. It is profitable mostly due to the success of Jamdat Bowling, one of the most successful cellphone based games. In this fairly nascent and fragmented market JMDT is one of the leading players and the only public pure-play. But there are many competitors both private and public.
With typical price to download a game onto your cell phone hovering around $1.99 its pretty amazing that JMDT is profitable. The key to understanding JMDT is to understand JMDT as a publishing company not as a technology company. The company has developed more than 70 games for 80 wireless carriers through out the world. Jamdat Bowling makes 25% of revenues which makes you wonder if the company has deep talent to expand its success beyond bowling. JMDT earns revenues from licensing applications (games) to subscribers for one-time purchase or monthly subscription fee. The carriers do billing, collection and remit a portion of the fees to JMDT- which helps carriers make a very nice fat profit. The percent of revenues carriers keep for allowing JMDT access to their networks in the U.S. is higher than many Asian markets. As the proliferation and popularity of these games increases in the U.S. expect this revenue share to shift. Carriers are under no obligation to market or distribute games. Some handset makers also embed games in the handset which JMDT earns money from on per phone basis.
Company has worked on publishing titles through licensing brands from NFL, MLB, Nickelodeon, PopCap Games and many others and it also develops its own brands. These games have long shelf-life with low upfront engineering costs which leads to very high gross margins. Company relies heavily on Verizon Wireless and Sprint, as the two carriers combined contribute over 58% of revenues. One of the most important things about the wireless gaming industry is that the carriers control access to the subscribers and carrier relationship is very crucial to success of any publisher. The competition is very fierce in this market with likes of Disney, Electronics Arts , Sony etc. The market penetration for games on mobile phones is very low, which could lead to big growth opportunities for many providers as more powerful mobile phones running on next-gen networks with higher bandwidth become a norm. Expect the quality and adoption of mobile gaming to accelerate further within the next few years.
JMDT IPO was underwritten by Merrill Lynch, Lehman Brothers and UBS. IPO was priced at $16 per share and ended the first day at $22.51, or gain of 45%. Currently JMDT trades at around $32, certainly not cheap if you believe the company will earn $0.70/share in 2005. The company has not filed a 10K yet since the company has not been public for long but it is very essential to read the S1 to understand all the risk factors associated with this company (some I listed above).
Listen to the conference call if you want to learn about the progression of this company and mobile gaming industry. The next big thing in mobile gaming will be interactive games which require higher bandwidth networks. Mobile gaming and other mobile applications are very important in driving transition to next-gen networks which has much deeper implications for various tech companies.
At time of publication I was net long JMDT, although positions can change at anytime without notice.

1 Comments:

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