TWIG 129: Applovin Falls 19%, Playstation IP to Mobile, Square Enix Acquisition Rumors, JK Retiring

hey everybody welcome twig 129. we've got a great episode for you today today we're going to be covering first app love and shares fall 19 and market debut from the wall street journal second sony wants to bring its top playstation franchises to mobile from tech spot and third multiple potential buyers interested in square enix reporting square enix denies microsoft or sony are trying to buy them from bloomberg japan and forbes oh that's two articles so it's about square enix they were like they were one after the other right it was like in succession okay so hey any updates from you guys i actually have a useful update for myself i just started using superhuman the email service and i gotta say it's it's so much more more efficient and effective than using a regular email client like outlook like outlook is so bad it's so terrible

isn't it like forty dollars a month or something in certain 30 a month but just just think of your month just think about your time though and how valuable your time is i am so sick of [ __ ] paying for subscriptions i i i want to avoid all subscriptions at this point in my life but they're just adding up i i actually should do the math about actually what the subscription cost is what's the value joe what's the value of i mean the really lame stuff that outlook should have figured out a long time ago just like shortcut keys to archive to like put stuff into folders to create email templates like i mean it's not like i don't i have no idea what microsoft pms especially on outlook are doing or thinking but like and and to be honest like 30 bucks a month is probably is overpriced for what they offer because it's kind of relatively straightforward but they actually do it you know and so superhuman saves so much time so anyone out there i highly recommend it

it's going to save you at least just just think about the value of your time it's going to save you at least two to three hours a month at the minimum so definitely worth 30 bucks a month this is not jk is definitely going to the vc route because every time you get an email from a vsphere send from superhuman [Laughter] no i just found like what was it outlook finally added snooze like a year ago and my life like fundamentally changed right like i was just so used to using google inbox google google mail snoozing archiving all that stuff switching to outlook was so painful and finally adding snooze finally allowed me to prioritize my time that that product is so freaking complicated and yet it's still not effective at all like not effective at all i don't get it i don't understand how they could be in this like i guess it's i guess it's just legacy [ __ ] they just can't undo what they've had all this time but just i don't know it's like one of those products they just keep adding adding adding and it's just a mess you know this is there's no efficiency whatsoever

i mean you guys have to i have to say since last episode we're talking wild rift and i became the the riot hater with my prediction so i had to go and play a little bit wild rift now i'm [ __ ] hooked i hated it i i knew that this would happen and now i'm losing my time playing wild rift are you right where you're at i don't i'm not ranked but i'm playing it every day playing in the e and then i like the worst thing happened the worst thing happened when i where i was supposed to have a like i'm not gonna say who the person who was who was to have a call with but i may have faded our call because i was playing wild drift and i didn't want afk yeah waldorf's my main game now too and but i mean i don't play much but at least i'm i'm like you know at least silver and i went to the rabbit hole of riot and so i'm like okay since i'm now in wilder if let me install again tft for the end time dude that game cannot make a billion like it cannot

play a couple of times it's every time harder and harder to get back into the game because it like it changes the meta 100 like half of the characters are changed you come in you don't know how to play this they're new origins they're new classes and the game just kicks you in the head and like what are we talking about team fight tactics yeah like the the most punishing game to get back into is team fight tactics like you could be ranked you could come back and just get demolished because they've changed the meta like just changed it wow 13 million revenue yeah there were there were a lot of rumors about new changes to monetization i don't know if those experiments have already run or not but maybe maybe they don't work out but actually from the data it suggests that they actually have an audience that is pretty freaking loyal to this game that keeps coming back maybe if they did figure out monetization but we've talked about this a million times all right let's go to updates mr adam

teleporter yeah so i've got two corrections from last time um number one the obvious one i totally jumped the gun on idfa um yeah i was i assumed because i was seeing the headlines and uh seeing att pop-ups and games that it was already rolled out but that was clearly my bad uh that was just games experimenting so um idfa is gonna be rolled out with ios 14.5 which is rumored to be starting today which is april 20th but nothing's confirmed yet so we'll see what happens today if the apple announcements if uh idfa starts rolling out um or if we still have to wait um second updates correction nba top shots so ethan levy reached out corrected me i said that you needed to wait six to eight weeks in order to withdraw cash uh from top shots um and assuming that was pretty much every single time you wanted to convert to dollars but this 68 window is actually six to eight week window is actually only once just to validate your credentials so then after that it's much faster all right but that's still

horrible that's like fine do you want to talk about the last fool theory this is like the definition of last full theory right six to eight week you know uh difference between when you can sell i mean that's nuts right yeah yeah we talked about that last time yeah let's not get too deep those [ __ ] did two rounds in two weeks right i've already down man it's not even a topic eric i've already triggered you oh my god no but i it is unbelievable it is unbelievable i mean madoff would be like like praising these guys you know what i mean like they're of course crazy nuts anyways joe you want to talk about amazon yeah quick update on my site actually before we jump into amazon because that's more concrete information so um i was so we talked a few episodes back we talked about warpath we talked about it on twit we talked about on on growth triggers how amazing their launch trailers this is the 4x game from lilith um

the makers of rise of kingdom the makers of of afk arena they had a really strong start on google play and current standing i just wanted to update on this so the revenue is about 5 million a month not a lot since launch at the same point rise of kingdoms their first forex game was making 50 millions at this exact same point seven months into launch and state of survival which is the scaling uh fun plus game which has now changed in its name or its branding towards walking dead was about 10 million at this point the rpi is looking pretty juicy for this game so we got a global rpi of 4.4 dollars this is uh twice actually what state of survival had at this same point and about a buck lower than what rise of kingdoms had at the same point and where this really gets interesting and why the rpi is probably a little bit higher than than state of survival is that the downloads are half compared to rise of kingdoms and state of survival at the same point

in their in the launch era so i'm i keep mainly looking at it because lilith is a fantastic publisher developer and forex genre is just something very interesting for me and it's interesting to see how this genre evolves with the idfa deprecation that is you know basically how this very whale-driven genre is going to evolve as these things are changing and you know based on only war path at this point it seems like it's it's not scaling us fast it might be the game though i think the game is pretty fantastic so i mean if you look at the downloads they haven't spent a nickel on the us for the entire history until like march 15th and then they started spending in the u.s so they have a different ua strategy than those other games it's clear i don't know exactly why but yeah exactly even because they have rides of kingdoms so it's kind of and they were in the google they were in soft launch for a relatively short amount of time

just probably because of this att debacle coming in so they kind of pushed the pedal to the metal it is a very very good game and i really like how lilith makes rpgs extremely accessible but fantastically deep and the same thing happens with 4x very very accessible almost like an rts felish to the game but again all the meta systems everything kind of reminds me of a little bit of like a a deeper version of uh scopely star trek fleet command so good job will it and interesting to follow how the scales okay update from me a couple updates first amazon cancels lord of the rings game announced two years ago so according to bloomberg amazon had been working on a lord of the rings game with china based leao technologies holdings which was purchased by tencent last december so unfortunately it sounds like contract negotiations led to some kind of dispute that caused the game's cancellation i think that's a major bummer definitely

lord of the rings ip is a really great ip to make a game with but [Music] yeah it's a it's a shame uh hopefully amazon will come up with some other stuff and the second announcement i want to make is i want to announce my retirement so we started twig a few years ago it's been super fun weekly activity it's helped make a lot of introductions in the industry got to know you guys a lot better proud of how you know successful how big the podcast has become but having said that i i think these guys know i've been super busy and as i zero based budgeted my time for me i want to probably do less content but more deep dives on stuff and i've been doing this like i started this finance podcast because i i suck at investing but all the mistakes and lessons i've learned so for anyone interested in in stock market investing check out super stock brothers podcast on youtube but i do this thing with miro

and so i'm gonna start messing around with that but anyway i do think uh for if anyone out there is interested in being a host on twig let these guys know or i think you know eric suffer would be amazing so if you have two eric's it'd be eric squared [Laughter] too much eric too much way too saucy but maybe so i don't know i'm still in the denial phase of this right like you're retiring but like you'll be crawling you'll be back yeah super skunk i give this a quarter two quarters yeah prioritizing some stock podcasts what do you want to do hang out with your family or something yeah yeah your kid's gonna be so old soon they were gonna be like dad go do some something you're well you know that's the other thing so i i realized my my son who's nine years old he listens to this podcast because we've got a lot of cursing and stuff so now i feel bad

[Laughter] if you're listening stop listening all right moving on moving on um all right let's start with the uh the first article of the day and that is app loving so long threads on the deconstructor fun slack channel um let's let's get back to the basics so they launched at dollar per share no it was eighty dollars it was eighty it was eighty dollars dude they're down significantly yes okay on the google chart it started at 70. yeah because they never got to 780 right oh [ __ ] from day one so they launched at 80 not even 70 which it was on google invest uh they were down from 70 they were down about 19 yesterday to 57 i haven't looked at today and the decline seems to have slowed down but it still continues yesterday also the shaw law firm announced its investigation claims against app

loving corporation so the investigation focused on whether apple haven't issued false and or misleading statements and or failed to disclose information pertinent to investor so why this is happening i'm gonna quote another eric eric handler an analyst at mkm partners uh he said said the the trading decline thursday may stem from how investors are thinking about the two sides of app lovin's business app 11 was trying to get a multiple more in line with an ad tech platform play mr handler said in reality much of their revenue comes from their own first party games so again i i said something about 86 percent of of the revenue coming in from games and then i was uh chastised for mixing apples and oranges and that's tempting to a whole thread so so let's get back to it and i want to give a shout out to

sergey from game invest newsletter he sent me some of his notes that were fantastic and if you're not subscribing to the game invest newsletter please do that anyway uh so apple album has a dive diversified portfolio of over 200 free to play mobile games across five genres run by 12 studios including studios they own and others that they partner with they got 32 million users daily their competitive advantage is the own studios and the partner studios utilize their software to market and monetize apps when using the software the their apps have an economic advantage which benefits business as a whole so um you know in their portfolio 31 percent comes from two games uh in terms of in terms of revenue that's matching to mansion and wordscapes uh but the uh the confusing part is this so they got three business directions and two revenue sources the the business

directions are core technologies which essentially means infrastructure then there's software which means software and then there's apps which essentially means games and the way they've divided this as the uh eric handler said is that business revenue makes 49 and consumer revenue makes 51 percent but then when you start looking at the documents a little bit deeper you understand that 71 out of the 49 of business revenue comes from advertisers that purchase ad inventory from app lovin's diverse portfolio of apps and only rest of it comes from software and core and then what consumer revenue means is the in-app purchases made by users within applovin's apps so as i said in the last episode 86 of the revenue comes from games this is calculated in a way that 35 percent comes from ad revenue the business revenue is 35

is actually ad revenue and 51 is in-app revenue so what this means is is that you know this is very much a gaming company now there's tons of details as i go deeper and deeper into analyzing the whole business model i'm gonna i'm not gonna bore you with that but basically just gonna say that or i'm not if you're interested just just subscribe to the newsletters of game invest but the summary is that that all of applovin's growth really comes from acquisition of different apps and operating these apps it doesn't come from the software solutions and they demonstrated the growth in 2019 because of these acquisitions and operations of these games and at the same time they showed almost declining revenue from business software solutions so what this really you know puts apple oven into position where they're more of a gaming company with growth primarily driven by apps and

by apps we mean actually games and a lot of these games were acquired throughout last couple of years without these acquisitions you know the growth of this company would probably stop or decline which is you know quite typical with with most of the most of the other big companies they do acquire a lot of companies and that's where the growth comes from and actually lion studios which is their hyper casual developer it does make some revenue but that's quite modest compared to to other big games that they have like the you know magic tavern and so forth the current valuation is above market multiples for the gaming companies and thus does not represent the fair value of the business that's just why the other stock is declining and you know we've had debates about this and and i've kind of raised the adjust acquisition which is an attribution platform uh i think it has a lot to do not only with the data that it gives to improve the

the game's business but it also has to has to you know way to do in the optics because that increases the revenue they're getting from software and actually adjust acquisition is the biggest one that they've made it cost a billion dollars so kind of like these are these are just uh information that i've gathered but my personal take is is i still believe in apple oven i mean it's a it's a well-run company and i think once the the sort of all these ad tech multipliers evaporate uh i think the company is set up pretty well for the future it is a it is a very um it's a it's a smart games business but personally also i'm a little bit bothered by how uploading has has operated in sort of a gray area nothing illegal or anything like that but it is a little bit gray stuff like the firecraft studios was the first thing that was in 2018 with the matching dimension like there's no such thing as firecraft studios and the fact that that

game was made by magic tavern somewhere out of beijing and they pretended that that game came from san mateo coffee shop it was just weird we've never seen anything like this where where the developer or the publisher hides the development studio and the game was was you know very much inspired by playwrx games and that led to the whole ua war between the two um and this and now kind of like the second part of this operating in the gray area in my opinion is is you know basically selling yourself as an ad tech company uh through through this this way how they communicate their revenues you know it's it's it's kind of it's it's just it's just weird uh but at the same time we've seen similar things happen with with unity and we've raised those things up as well and um and finally like what bothers me as an investor i'm not having bought the stock yet i'm kind of waiting for the for the pri for the right price but i i think some of the discussions that you hear on the streets uh word on

the street is is quite often when you're dealing with app loving i haven't dealt personally so this is this is just coming from others is that it feels like you know they feel that they're above the game industry uh despite the fact that that most of their revenue is coming from games and and you know they're kind of portraying themselves as a software company of a flywheel company and whatever whatever you want to call it so uh that's that's my analysis and that's that's a lot of it as taking from game invest uh newsletter so just subscribe to that and and you'll see more details eric uh yeah i'm at a i think this is a relatively simple simple story to summarize um you know i talked to at least a dozen people about this company out there uh you know i i think i understand the company without really understanding the nitty-gritty of what they do because you know how i feel about ad tech in general but uh so let's start with the strengths which is something i rarely ever do so clearly this is a really well-run company with really really smart people

i think these are all like kkr people that are just probably the smartest people in the world right um they are a top three ad network and they seem strategically one of the best uh out there you know outside of uh facebook uh the vertical integration was a brilliant move um early to uh you know provide an edge for their business um the adjust acquisition is interesting and it also provides continued vertical integration but it may alienate lots of clients in the long term and i think that's the one point that i think investors don't really try to understand or can't understand from this business but we'll get to that in a minute they do have a potential ability to circumvent idfa but i'm not sure if apple's going to be okay with that so it's like yeah you can circumvent it all you want but we'll see what apple does when you try right um and finally they're dirty they're super dirty right and maybe in a good way right they

are super smart and they're operating on the edge of what some would consider decent i would say but they're very effective at it and they're doing extremely well at that and so that there's something to be said for that uh i think the challenge will be that being a publicly traded company and and getting that kind of scrutiny will um ultimately be the undoing of some of those type of practices right um and and maybe that's part of what we're seeing with this lawsuit as well um i'm not really i didn't really read up on the law suit so what are the risks i mean fundamentally this is not a sas company it's not even close right the fact that they're getting a 20 times multiple on revenue are you kidding me you know like dude it's obscene right so this is an ad network with the majority of their revenue being driven by games they have acquired right they're not even these aren't even companies that they build right and you know i get this pitch on unity right unity is a sas company it's a very bad saz company but it's a sas company but app loving is not right so that the multiple is outrageous

right um again the majority of the revenue is being driven by games so it's basically zynga which trades at five times revenue versus app loving which is trading at 20 times revenue it's it's ludicrous right um i do the vertical integration is a great pitch but the reality of these business practices they're doing like where they're taking the best of breed products from their customers copying them and optimizing them using their customers data and it creates like and and ultimately alienating all these people that they're that all these big accounts that are that are providing them the data right that that's not a sustainable model just just to be clear right they can't keep going right people will not put up with that right um and again these practices can go unnoticed as a privately private company but when you go public if they're like front and center right and you're you're people will start suing you right because you are a public company right anyway uh idfa is the threat i mean

there's no coincidence that all these companies are going public right before idfa right that who knows what's going to happen with idfa i think a lot of people are just completely confused you know it will affect their business right and you know and even though they talk about them being able to circumvent i think it's unclear at this point and they may try some shady [ __ ] but ultimately you know apple's not going to put up with that you know um and so the other thing is like from all kind of the evidence that i see the experiment which be machine zone has been an ultimate fail right where they acquire the company for 500 million all the games are continually to decline uh my understanding is that they really don't have much experience doing live ops for core games so their focus is primarily going to be on casual that's what they what they do so um so anyway fundamentally i think this is a really good company after saying all that right i think they do really good they are amazing at what they do but they are so way overvalued it's obscene in my view

anyway uh they face an extensional threat from sorry existential threat from apple and google um they've done an amazing job of telling the story but i'm not sure any of this holds water right at these valuations uh i don't think this is as bad as skills because i think skills is basically a criminal organization but i do think that they uh have sold a bill of goods that there's not it is impossible to live up to and this is like very similar to the unity story i don't i think unity is actually in a bit of a better place to some degree but both of them are selling a story that they just cannot um execute against because they're not a sas company they're a game company and they should be trading five times about revenue not 20 times and so that means they're worth like 10 20 bucks maybe you know um so so a buyer beware right i wouldn't i would stay way way far away from this these this company so so i've got a few thoughts on app loving as well and by the way for anyone

interested in half coven as a as an investment i did cover it on super stonk brothers so uh i'll leave a note but i think that one important concept to talk about is the concept that adam perugi and that they keep talking about which is the netflix of gaming and when you first hear about this concept you it's you know it's like i personally was very skeptical what what do you mean netflix of gaming how does that make sense for app lovin but what they mean is and something that you see in the s1 and they've talked about uh over and over again is the fact that they do like three trillion predictions a day and that they've got they've been building a lot of machine learning technology and if you think about what did the hyper casual genre and the hyper casual publishers perfect during the the early days which was this notion of cross promotion and if if you've seen one area where cross promotion works and where you have models that actually work and are very

predictable it was in hyper casual and so when you think about what is netflix well netflix is a recommendation engine it understands the kind of of videos and content that you like and recommends other content and the platform on which it operates is the app now applovin doesn't have an app as the platform for their recommendations and so why do they break out that the ad revenue versus the other type of revenue the ad revenue as a segment which you know which is why they i i think try to reinforce how much ad revenue they make is because ads is their platform that when you think about how are they going to cross promote and how do they execute against the recommendation engine how are they the netflix of games it's by cross promoting against their ad network and that's that's kind of what their strategy is and when you think about their acquisition strategy why do they acquire adjust what are they trying to do with that acquisition this is what their strategy

is right so when you think about the high level strategy that's what they're shooting for when it comes to this concept the netflix of gaming as far as the company is concerned i do have concerns i know eric and michigan mentioned a few i also would say that in terms of disclosures in the s1 they do mention that they are taking advantage of limited disclosure especially with respect to some of the some financial issues as well as exec comp and uh that's one area where i think that you're gonna see see a lot of executive compensation stock based comp flow out of the company i think that the cash flows from operations are overstated but i think that in terms of what to watch out for i would say that the adjust acquisition one of the things that one of the other advantages that they have is that it just has this vast treasure trove of data of post-install events that have like revenue

information and the ability to have essentially like rpoo profiles against different genres of games and so when you think about in a post id feed deprecation world and you've got some ability to potentially use sk ad network to map a player to a longer-term rpu profile that would be a potential for them to be able to have competitive advantage over other other players in the market and there's been a lot of rumors about them trying to implement capabilities like auto rojas and things like that which would also give them further competitive advantage so don't count them out i do think they've got a tough hill to climb but they still do have some serious competitive advantage in in terms of their ability to execute next story adam so you're retiring eh that was good that was actually really insightful why are you why are you retiring um anyways let's move forward um

sony wants to bring his top playstation franchises to mobile um in a recent job listing sony is now putting out a call for a head of mobile uh looking for a three to five year product roadmap to bring playstation's most popular ip to mobile i feel like i've heard this before god i mean you like i've heard this before you want to you want to take a job in which you're going to be like doing the russian roulette your head within the first few months yeah there you go do that um so love to see how they put a place there man that is nuts yeah that will be a very very difficult position so in terms of ip just to kind of do some quick research here the ip that sony has that i think is relevant little big planet mlb the show which of course would need mlp's permission ratchet and clank jack and daxter god of war last of us horizon zero dawn uncharted ghost of tsushima uh spider-man which is unlikely so should sony be doing this right should they be taking all this ip that

obviously has you know great value on pc console and bring this all to mobile and what would you do as a head of games i'm speculating here but i think obviously this is an incredibly tough job because you're really battling outsize expectations relative to what you have at your disposal um i think the worst case here is if the boardroom is saying build me a call of duty mobile with uncharted ip right like then you've already lost and you've already seen this issue with uncharted pvp mode which they launched how many years ago super quick research on this as well just to kind of talk about the tools at your disposal looking at google trends for their biggest ip arguably god of war it's six percent the size of pokemon 24 percent the size of mario 12 the size of call of duty that's the rough sizing of the value of this ip and my sense is that value of ip is exponential not necessarily linear um so organic

download volume of these games just will not compare to the games that have managed this transition successfully so they should not be expecting download volumes from mario kart call of duty or pokemon go but most critical none of these games are really aligned with a successful live model the first party development is focused on bringing powerful single-player narrative experiences nobody wants to play uncharted ccrpg nobody so the only game on this list that really could be aligned with the service is probably mlb the show but then how much brand power does that have versus say ea glues tap sports baseball a little big planet potentially you know some sandbox ugc platformer maybe but again this is a three to five year roadmap not a five plus year post launch uh marathon that you need to drive a ugc sandbox like roblox did um so besides that you're basically getting backed into the corner of building crash on the runs this doom

archero game that was just released by uh bethesda or crazy taxi idol right jake right joseph right like these types of experiences where you take an ip you bend it to fit an existing model and then leverage the organic downloads for the ip the best you can but the expectations of this path should be significantly lower than of course call of duty and pokemon go but this pretty much just becomes a portfolio of middle ground live service games that will likely just be touch points for the brand it can be profitable and aggregate if run effectively but none of these are breakouts so really i think this last path really pushes you closer and closer towards the licensing and partnership path where they effectively offer up their ips to other developers i wonder if they're even considering it given the description of the role but um like looking at this that seems like the obvious best path

yeah yeah like on on the paper this makes all the sense because when you start thinking about like think about you know kill zone all these amazing ips and now you can play them on on your mobile device it makes all the sense but the big question is as you mentioned is like how do you make the move like how do you make the jump to mobile will you go in a typical third-party publishing and then you know second party what what sony likes to do um and what is the time frame that's probably the maybe the most important question like how soon does leadership expect results and what are those results expected in in certain time frames like is it impossible mission or it could be something that could be grown over the time and in the end it's like who's going to be making the calls like i kind of think about like what are the two bad options for for for a person leading this type of organization you know number one is usually what can happen is you have somebody who's like anti anti free to play person who's all about bringing the console quality to

mobile and kind of disrespecting everything that has been happening on the mobile and then you have the other spectrum of that is you know sort of a typical what we call like an egg zynga pm a b test everything and make fast follows out of everything so kind of you know uh only one new incremental innovation to this and let's just slap an ip and an a b test ourselves to the uh to the oblivion uh i think the good option good option for for this type of person and to lead this effort is somebody who has a very balanced approach who can make smart calls without clinging to any ideology and very much looking at the market at the product at the capabilities of the studios so i think it's important as we discuss this like what would what would we do in this type of position you know i think personally it comes from from the setting correct expectations uh and if i'd be in this type of position i'd probably go for sort of a quick wins

i know it it it sounds stupid to talk about like fallout shelters and whatnot but fallout shelter made 100 million over the lifetime in revenue and it was pretty quickly done with a third-party developer so even if you can get those type of games out quite quickly they generate positive feedback and also positive positive revenue and you can kind of keep doubling down on what you want to build this this endeavor too and i think what this could look like is something that sony has done with its other studio so where they start with a third party production move into second party and eventually acquire them uh but you know the the the issues of like the the mistakes that you can do here like the biggest ones is you know building an expensive internal publishing organization we've seen that and jk may have some kind of experience from this first hand that's uh that's probably not the way to go here the the second one is to focus on internal development we've

seen that as well that's like the amazon route hire everybody pay them great salaries and expect them to make the biggest games ever and then the third one is to just make very quick rash acquisitions of studios and and have them have them do work for you so uh in the end like i would summarize it to having a um a very measured approach uh a kind of a like a little bit of a low risk of grabbing a couple of low hanging fruits with third-party production with a little bit of a easier games and buying yourself time to set up great relationships with with few of the studios and and most importantly have the sort of a partnership model that would end in a win-to-win scenario for both the developer as well as the publisher in this case sony so um but eric you know more about sony's business so i mean i don't know anybody ever have a friend that works at sony i mean sony's like the worst place in the world to be innovative right it's it's just old school like slow as [ __ ] you know like total like you know

huge ship trying to avoid icebergs you know like it's moving like a glacier pace it's like there's no [ __ ] way that this is gonna happen this is the same conversation that we've had with about nintendo back in the day about them making mobile games and how did that turn out right i mean like this is not like rocket science you know it happens every single time these big companies try to do something new you know it's like and anyway i was going to start off with a positive but clearly that didn't work out but um you know look mobile is a promise right this is the same promises that nintendo talked about is that it introduces their ip to a huge audience that broadens out its potential appeal in theory it's kind of a marketing opportunity that's good um mobile game development actually could build some live operations experiences when this within the studios of sony i mean the fact that they do not have live ops experience at sony is criminal in my opinion right but that's the way they've

been managed for a decade right and that's not going to change anytime soon so an infusion of people that are actually building live operations and building you know games with a service that could be good for the organization so from that perspective i think this is a good strategy um and of course you bring their ip to the biggest market for gaming just in general like you know anybody that went to business school or that works at mckenzie and bain could put this together and create a 100-page deck about why this strategically makes sense so i'm not going to argue that but the bad thing is that sony has absolutely no freaking business building mobile games they don't have the expertise they don't have experiences with live services they don't have any of that expertise within their organization so this is going to be absolutely herculean tasks for sony right and like nintendo they have very very very few translates few franchises that actually translate late themselves to live services because they do not make live service

games right so it's kind of like you need one with the other to some degree you know like ea and activision and and some some nintendo franchises are more akin to this but their core franchises at sony are just not period they're like single player story based games that do not translate at all and this one thing that i think people always fail to acknowledge is that acquiring people the right people to manage something like this is impossible like people do not want to work for sony and do this kind of thing everyone knows that doing something like this in sony is a recipe for disaster and frustration losing hair you know like getting wrinkles like you just you age like a thousand years by doing something like this for like six months you know so no one wants to work at sony and build mobile games if this doesn't make sense you know like you go to a mobile game company to make mobile games right you don't go within the belly of the beast of a console company and do that right

and and ultimately this outcome will probably be worse than nintendo so at least nintendo had one game that did really well right which which lended itself to mobile and the other franchises actually probably helped expand nintendo's visibility you know mario kart and the mario run et cetera but being more successful than sony i'd be sorry being being as successful as nintendo is such a low bar that like if you're worse than that i mean it's even i mean it's it's a train wreck waiting to happen so i think the better strategy for them is to screw this idea of building any type of mobile expertise within the company and just license their [ __ ] out right i don't think there's any risk to that to some degree with their franchises if you built an uncharted game on mobile with some like third-party developer that understands mobile then that's not going to hurt the sales of the next uncharted right that that myth which was perpetrated by ea for a decade i mean a decade they didn't fifa didn't want to make a mobile game because they

felt that it was going to ruin the experience of their core game that stuff has been gone for eons right so let them do that right don't try to build mobile games it's not going to work right and nintendo's abandoning it you know and and like i don't know it's always like i feel like we're always like repeating the same mistakes over and over again in this industry uh to some degree particularly with the big guys um and i didn't get a chance to talk about amazon but like you know amazon canceling this game i mean are they gonna have any games like i guess that game the whole game division is gone right in theory so anyway yeah that's it that's all i got anybody else on this the amazon still has one mmo right i think it's new world yeah no i played it it's i mean good luck how can they have their own engine lumber yard dude no one's using lumber yard come on they don't even want to use lumber yard right like yeah what do you mean it's made on it's all made on top of cryengine yeah dude that was the worst engine ever like there's not one dude they couldn't even

run that game on pcs you know the second game was like impossible to run right because that engine was trash dude it's like what are we talking about [ __ ] lumber yard give me a break all right moving on so this is not that interesting of a story but i just wanna i wanna i wanna dispel some myths about some things just so that everyone kind of understands this this this thing all right multiple potential okay uh sorry what is it japan bloomberg japan basically said that multiple potential buyers were interested in square enix right that's what that was this thing and i have never seen a company do a faster press release against this kind of [ __ ] when square enix basically came out and said there is absolutely no truth to this this story basically they said and so and uh and uh they basically so bloomberg says they are quoting multiple bankers from that deal right but but it just square enix just basically said this is not [ __ ] we have no interest in selling our company or

selling parts of our company whatever whatever whatever so it was a pretty clear-cut denial and i know i've said in this podcast before that uh these type of press releases are could be trying to get more interest in the company but the way this stuff was all positioned it felt like this was like a seems like a flat denial that square enix is no not for sale so um and i don't know of how much familiar everyone was square enix and everyone knows final fantasy i guess but they've been actually relatively successful over the last few years they're like one of the japanese like core publishers you know konami capcom and and square enix that has done a pretty good job i think capcom is doing okay as well konami not so much but um you know they have like final fantasy kingdom hearts tomb raider marvel avengers we've had issue you know that's there's some issues with that but they do have some amazing ips and there is some value there in particular for sony um uh the article kind of suggests that activision might be a good buyer but this does not fit activision strategy at all uh bobby is not have i i almost guarantee you not

that i know bobby personally but i don't think he has any freaking interest in managing a japanese company period end of sentence right so like that's not happening but the reason i chose this article is to say one thing and to make clear point on this acquiring japanese companies is impossible right it is impossible for a foreign company to acquire a japanese company and if it's not impossible it's so unlikely it's impossible right and it's similar to korea to france to china like foreign ownerships in in publicly traded entities within those companies almost impossible to do so the notion that like microsoft or activision or ea is going to acquire screening it's almost an impossible proposition on its face so i just want to be clear on that now if it was another japanese company maybe that's possible there is obviously acquisition between japanese companies that happens right and so something like sony makes sense right because sony is trying to you know shore up their studio org with get companies with more studios that don't know how to make live services right but um but

nonetheless like that makes sense for a japanese company or maybe another big japanese conglomerate or something to own it whatever but the notion of of a western company owning a japanese company is is preposterous in in in on its face but anyway i just wanted to point that out i think i think there are they do have some really good assets i think they're doing extremely well and they're like one of the one of the success stories of the japanese developers which which have had a lot of challenging times over the last few generations um and particularly because the japanese console market is is floundering right most of their business is in mobile these days so anyway i uh yeah just wanted to point that out anybody have any comments on that i mean isn't it pretty typical for bankers to just like put together pitch decks and propose stuff to various companies right maybe one of those things one of those decks leaked out and then they're like oh this is something that's happening that that is far more likely that is far more likely exactly so like um when chris petrovick said in the co

in in the podcast he's like yeah i'm so happy that i won't have see glue as a potential acquisition target on every deck that i see see their logo pop up now right similarly like everything seems to be for sale right now gaming's hot hot hot so why not look at konami capcom square enix and put that on on a slide that gets leaked and then then people at bloomberg just kind of throw the [ __ ] out there that that that is actually far more likely than than them actually trying to sell so the reason that japanese culturally japanese people do not you know like have a lot of pride in their companies and they're not going to sell that's why part of the reason that cd projekt is likely not for sale because they're like the gold standard in poland right how many companies in poland have any type of worldwide visibility right so it's like like it's it's hard they wouldn't want them to sell to another publisher right in theory so anyway yeah just want to throw that out there anything else triggering this week this this week no i think we've triggered enough

what we raised on applovin um amazon uh somebody disc microsoft pms so i think we've covered the industry pretty nicely i want to be clear about app loving i think they're an amazing company but they're not [ __ ] worth 20 times revenue not even close so that's that is that you know what's funny is that is that like the reason that this is a kind of a broken ipo is because a lot of the sophisticated investors are not buying this [ __ ] this time right so they bought it with with unity and they're getting annihilated because the stock is down like 40 from its highs right um and then now like you these guys are later to the game and so they're getting smarter about it right you know once bit and twice shy type thing um but uh i i think i think this this stock is going to have some trouble like uh you know finding its footing um now what what ultimately should happen and where i would be right is if they can't grow revenue the way they suggest

right or the accounting thing you're talking about could be really bad for them if there's any type of adjustment on accounting um in terms of how they recognize revenue because they're like using their own network to sell their own products and advertising stuff like that so it's a little bit murky right to some degree so if something needs to be clarified on that side of it that would be bad too but yeah they got a ton of earn out too so even the games they've got massive burnout and i think they're capitalizing r d if i'm not mistaken that's risky too i've heard some some interesting stuff regarding accounting so this is in reference to certain companies that we've been talking here and and people have reached out through back channels saying dude you're i think you're a little bit off and that the sensor tower numbers are off they could never be off sensor towers never off anywhere sensor tower would never be off in scale like that in terms of trends i said like in trends he's like yeah in terms of a trend with the art portfolio and this person it has a very clear view

of of of course how much money their games are making year over year uh but anyways the point was there that in ifrs accounting system um if ass if game assets are bought and not consumed immediately they are kind of deprecating over longer time so they are not put into revenue right away and what this what this person was was insinuating is he was comparing his company uh and king and he said in king for example they have only four percent of all the revenue um kind of deprecating over time because most of it is just consumed immediately like lives and and health and whatnot and in in more of a um mid-cour-ish companies what you would see is people buy skins and they buy you know new levels and what not more power and because that's seen as deprecating over times they actually have more cash in their balance sheet than that okay all right first of all like i'm sorry this argument about

uh gap and non-gaap stuff like everyone looks at non-gaap from a valuation perspective so it doesn't all that deferral [ __ ] is irrelevant like your deferral policy on how you defer revenue is irrelevant because one of them evaluation perspective wall street is looking at your your bookings right and so um and that's the only thing i'm a little bit unclear as to whether or not you guys captured the stats right because i haven't really looked at it to be honest on the s1 but like do they actually do bookings like do they show you bookings and all these percentages of revenues are is that bookings or is that uh after deferred revenue um so anyway their policies on deferred revenue are kind of irrelevant because again they look at network bookings and then profitability based upon those net bookings so adjusted for things that joseph has issue with but you could have all the issue you want mr stunk like it doesn't matter if the whole market is looking at one way just you can look at that any way you want man just to clarify so eric and i are on opposite ends of

whether whether you should include stock based comp and adjusted ebitda and so i believe you should include stock based comp and i believe you should actually like typically you also want to smooth out for leverage but in this in this current environment i i think no it's not the current environment joseph 99.9 percent of people [ __ ] do adjust out of stop-based competition no no no i'm talking about i'm talking about leverage you know in terms of like in the current interest rate environment we're in that capital capital structure is probably gonna have more leverage but like so yeah in terms of uh we're going way off topic but when you look at adjusted ebitda i personally would include stock based comp i personally would include basically like acquisition expenses and things like that especially if you've got future earn out but that's if that's your own peril dude when 99.9 of people that are looking at the stock that matter you know the investors like cap group and fidelity

and i just do what warren buffett does that's what i do anyway moving on final note send a message to jk tell him not to retire dm him yes everyone get out there and like tell him about oh diversity [Music] see i knew it he's coming back just admitted it he's coming back see you in a couple weeks see you yeah see you in a couple weeks all right have a good week everybody bye bye [Music]

you