‘Bejeweled’ Publisher Ponders IPO

Investors looking for a chance to get a piece of the fast-growing social network gaming and mobile gaming spaces could have the opportunity by year’s end.

Source: popcap.com

PopCap Games, known for such titles as “Bejeweled,” “Bookworm” and “Plants vs. Zombies,” is mulling an IPO. And while a casual game company might seem an unlikely contender to go public, this one boasts both a rabidly loyal audience (that often buys multiple copies of its titles on multiple platforms) and steady revenue growth. As a result, it has been on Wall Street’s radar for a while now.

PopCap president David Roberts says the company hasn’t committed to a public offering yet, but it’s an idea that it has been building toward for the past few years. The company has filed a Section 12 registration with the Securities and Exchange Commission, he noted.

“I do think we’ll be ready internally,” he says. “Whether the market is ready remains to be seen. … It has got to be right for us.”

PopCap crossed $100 million in revenues last year and has sold more than 10 million games on the iPhone. The company has been steadily adding to its board, including tech veteran Steve Raymund last May. In October 2009, it received $22.5 million in venture capital funding from late-stage investment firm Meritech Capital Partners.

At the same time, it has become a power player in the digital space, creating three of the top 10 downloaded games last year. And it is the third largest Facebook developer, with 4.7 million daily average users – despite having just two games on the system. (Disney , by comparison, has just 3.3 million DAUs with 37 games.)

On the traditional retail front, the company the company ranks eighth, with sales jumping 135 percent to $13.8 million in the last two years. Rather than other publishers, whose games typically have a shelf life of just a few months, the whimsical nature of PopCap’s titles and their focus on a wide audience ensures the titles stay on store shelves for years.

“Bejeweled,” for instance, has been among the top five sellers at Wal-Mart for over seven years.

Like Take-Two Interactive Software’s Rockstar Games division, PopCap is a company that tends to move slowly with new releases. Instead, it iterates its franchises – releasing slightly different versions on different platforms, which often results in fans buying another copy of the game to experience those differences. (This has been particularly true with “Plants vs. Zombies”.)

"Our goal is not about an exit at PopCap. It’s about creating this legacy of games that mean as much as ‘Monopoly’ and ‘Scrabble’ to the world." -President, PopCap, David Roberts

Its internal projections have been consistently accurate, though. Roberts says the company has met internal revenue forecasts for 15 of the past 16 quarters.

While he declined to address rumors of a new game franchise entitled “Yeti Train,” Roberts indicated that there are no immediate plans to roll out any new intellectual properties.

“Don’t hold your breath,” he said when asked if a new IP might be released this year.

“We kill a lot of products before they go out the door,” he said. “If the team’s not jazzed about doing it, we don’t make them. It shows too much in the product if it’s forced labor.”

The company’s consistent string of hits has brought suitors out, as well. (Zynga is often mentioned as a strong suitor.) While Roberts acknowledges PopCap has had conversations with several companies, it is still considering its options.

“Whenever you file an S12, you’re pretty much guaranteed that someone will come and try to buy you,” he says. “Our goal is not about an exit at PopCap. It’s about creating this legacy of games that mean as much as ‘Monopoly’ and ‘Scrabble’ to the world.”

Analysts note that PopCap’s sterling reputation could make it a favorite among investors should it decide to IPO. Additionally, it’s one of the few companies in the video game industry that has successfully expanded into all of the new areas into which gaming has spread, while still achieving success in traditional platforms.

“I think there’s a painful lack of investment vehicles which provide exposure to some of the emerging online and social network forms of entertainment,” says John Taylor of Arcadia Research. “There’s only really a couple of small companies - like Glu Mobile and Gameloft. Otherwise, the companies that seem to be leading or have a pretty good position are either private – like Zynga - or buried in much larger companies so they barely move the needle.”

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