GREE’s Founder Sees Stake Dip to $1.4 Billion Valuation: Can It Fight Back?

Mr. Tanaka, founder of GREE.

Mr. Tanaka, founder of GREE at work.

Japanese gaming company GREE (TYO:3632) is one of the most admired companies from Asia. But few companies can defy the gravity of economics. What goes up must come down and that unfortunately is happening to GREE. (UPDATED: Corrected headline, which mistakenly gave impression we were talking about GREE’s total market cap).

Bloomberg writes:

In five years, Yoshikazu Tanaka became Japan’s youngest billionaire as investors piled into GREE, valuing his controlling stake in the early maker of phone-based games at $4 billion. Just 18 months later, that has shriveled to about $1.4 billion.

The report also says that GREE is facing increasing pressure from Apple’s App Store and also Google Play where new-age smartphone users are downloading their games. It says that “GREE relies on the generation of handsets that preceded smartphones for 60 percent of revenue.” So more Japanese switching over to smartphones further shrinks GREE’s paying user-base.

In all fairness, GREE’s games are available on iOS and Android platforms as well. But it has to give part of its revenue to Apple and Google, like any app developer or publisher in those stores. GREE was also perhaps slow to ride the smartphone gaming wave with an unsatisfactory rollout of its English gaming platform. To make up for its smartphone game shortcomings, GREE has acquired Funzio ($210 million), Pokelabo ($173 million), and App Ant in the past year. Still, its US expansion isn’t going as smoothly as planned and profit dipped in the last quarter.

New competitors like Line and KakaoTalk are making the competition even more intense as these mobile messaging apps are proving to be good social platforms to host mobile games. While games on mobile chat applications still run on iOS and Android (thus still needing to offer part of their revenue to Apple and Google), the profits still look healthy. GREE’s reaction to the mobile war is Tellit, built by GREE-invested eBuddy. It’s growing well but still falls way short of Line (120 million), WeChat (300 million), and KakaoTalk’s (80 million) immense user-bases.

With all the above said, I trust that GREE’s founder Tanaka has what it takes to overcome these challenges. GREE’s success didn’t just happen overnight. It overcame a lot of challenges to reach today’s height.

(And yes, we're serious about ethics and transparency. More information here.)

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