Updated Enterprise Values of 15 Public Mobile Entertainment Companies

What a difference a week makes. I'm already updating this spreadsheet with some new data. Here are some notable changes:

• Buongiorno posted Q1 2010 earnings
• Velti filed updated earnings with the SEC as part of their bid to go public on the NASDAQ (they're currently listed on LSE)... their numbers are pretty impressive (more on that soon)
• Mandalay Media, parent of Twistbox & AMV, changed its name to NeuMedia, Inc. & announced a notice of default related to a cash balance provision from a key creditor
• ROK Entertainment's stock is down over 50% today (guessing they'll be more news to follow). Btw - did y'all know the biggest shareholder in ROK is the DeJoria family, which controls the Paul Mitchell salon product empire? Always thought the guy in the ads was Paul Mitchell... but that's actually John Paul DeJoria (Mitchell was his founding partner). Anyhoo, probably hasn't been a great investment no matter how you cut & color it

Latest Enterprise Values of 15 Public Mobile Entertainment Companies

• Data for Velti & ROK Entertainment should be taken with a grain of salt, since they haven't released financials in recent quarters
• It looks like a couple of these companies should consider giving their cash back to the investors, and calling it a day. Some of them shouldn't be public at all (and are barely going concerns)
• I think the shining stars of this lot are the mobile games publishers Gameloft, GAMEVIL & Com2uS
• I look forward to adding Motricity into the mix, once (if?) they go public
• Let me know your thoughts on this and if there are any other public mobile entertainment companies I should be tracking

Twistbox & AMV Parent Mandalay Media Reports Quarterly Earnings

• Cash continues to be a scarce resource, the company had $2.3mil in the bank as of Dec 31, 2009
• Mandalay Media (MNDL) claims key contributors to falling revenue are "a very challenging European sales environment", the loss of a "significant on-deck advertising management agreement", "tighter regulatory restrictions" of off-deck adult content in the UK and "lower (games) revenues from U.S. carriers"
• The company reduced the costs attributed to licensing IP by 50% in the last 9mos of 2009, compared with to the same period in 2008
• The company has substantially cut development headcount/costs
• The company continues to renegotiate payments and covenants associated with a ~$20k debt obligation it has with a small cap fund called ValueAct, with the latest twist being that payments are postponed until July 31st and the minimum cash covenant has been temporarily reduced to $1.6mil until March 10, 2010... and $4mil thereafter (until the next renegotiation)
• Adult content continues to dominate revenues (see below), accounting for 88% in the last 9mos of the year and 89% in the last 3mos

Check out all my posts about Mandalay Media by clicking this link.

Mandalay's Gotta Shake It's Money Maker

Mandalay Media (MNDL), the parent of mobile adult content and games companies AMV & Twistbox, reported earnings and guidance yesterday for their fiscal Q2 2010. Revenue increased more than 100% from the year ago period... but that growth is almost entirely attributable to the AMV acquisition. A look at recent consecutive quarters and company guidance to full year revenue "in excess of $40 million"... indicates the company is running super-flat. I've posted a lot about Mandalay and my lingering concerns continue to intensify. They've gotta deal with their content identity crisis. I contend that they should focus on the adult content market, which provides 87.5% of their revenue, and in which they're a major player (remember Twistbox used to be Waat Media). However, I'm not at all convinced that's the direction they're headed following the appointment of Ray Schaaf as President and their recent Hail Mary attempt to buy World Poker Tour. More immediately, they've got to deal with their deepening cash crisis... as of September 30th they've dwindled their reserves down to $2.8mil, which won't last them 6 months at current burn rates.

Mandalay's Bold Bid To Buy World Poker Tour Fails According To Report

According to a post this morning on GamblingOnline, the shareholders of World Poker Tour Entertainment (WPTE) voted to accept a $12.3mil purchase offer from UK online gaming powerhouse PartyGaming Plc (PRTY), through its Peerless Media subsidiary, at meeting in L.A. last Friday night. This presumably brings to an end the ambitions of Mandalay Media (MNDL), parent of mobile entertainment consumer brand Twistbox, to buy the company. Mandalay had mounted a bold (audacious), last minute bid that looked to be substantially superior ($36.5mil) from a purely financial standpoint... but apparently many WPTE shareholders felt that the match was not strategically superior. The deal should be completed at the end of the month according to the post. Given the massive discrepancy in the offers, I'm guessing this isn't the very end of the story... I'll keep you posted. If it is the end of this story, it'll be interesting to see if Mandalay diverts its acquisition ambitions elsewhere.

Quick Updates: Mandalay Ups WPT Bid & 3M's Artificial Life Investment

• Apparently Mandalay Media (MNDL) is jonesing hard for that World Poker Tour Entertainment (WPTE). According to a press release this morning it's now offering to "acquire WPT for $36.5 million, consisting of $28.5 million in cash, $5 million in Mandalay Media stock and perpetual revenue participation rights, guaranteed to be at least $3 million. The estimated value to shareholders per share is $1.77, including the guaranteed portion of the revenue participation rights, and as adjusted for the actual share count at closing. The proposal represents a premium of approximately 61% over the closing price of WPT’s common stock on October 26, 2009 and a premium of approximately 28% over the implied value at closing of WPT’s pending asset sale with Peerless Media Ltd." Investors clearly like this potential marriage because both stocks are up over 10% in early trading this morning. Mandalay estimates that if the acquisition is successful that synergies (buzzword alert) realized in the combined company will yield annual revenues in excess of $60mil (compared to $47mil if you add their 2008 revs) and EBITDA in excess of $8mil. btw - if anyone has any insight into how this potential deal is going to be financed, I'd love to hear about it.

• Just some quick housecleaning in terms of my post Monday about 3M's investment in Artificial Life (ALIF). In the end the 6,447,491 shares of common stock 3M purchased at $1 each actually gave them an 11.31% stake in the company... the original estimate was 10%.

Mandalay Trying To Get More Game With Schaaf & $35mil World Poker Tour Bid

Not only is Mandalay Media (MNDL) clearly not heeding my advice to focus on adult mobile content, rather than trying to become a major player in the crowded mobile games space, it looks like their gaming ambitions run much deeper than mobile. Yesterday they announced that former Sorrent (now Glu Mobile) and Navio executive Ray Schaaf, a guy they characterized as a "mobile gaming veteran," has taken a position as company President. They followed that today with an announcement that the company has made a $35mil cash & stock bid to buy World Poker Tour (WPTE), at a 54% premium over its stock price and a 23% premium over an offer that's apparently already on the table (and pretty close to being done) from a company called Peerless Media. I don't have a clue where Mandalay is getting the cash for this audacious bid for a company, that at first glance, looks to be in better (if not equally not good) financial shape than it's in. But what I do know, is that if this acquisition is successful, it will radically realign and diversify the media holding company beyond mobile porn and games. That said, on the mobile front it would give Mandalay (and its Twistbox division) access to a proven, powerful franchise that's been shepherded for many years, under license, by Hands-On Mobile... who can't like this one bit.

Enterprise Values of 15 Public Mobile Entertainment Companies

Twistbox CEO Ian Aaron Resigns

Mandalay Media announced on Tuesday that Ian Aaron, the CEO of Twistbox and Director of Mandalay Media, Inc. (MNDL), was stepping down effective the next day. The release did not give a real reason ("to pursue other interests"... hmm, like macramé or scrapbooking or something?), nor did it indicate who would be replacing him. However, Aaron's statement that "with 80% of (the company's) mobile business International, my departure coincides with the transitioning of our day-to-day operations overseas," would indicate that the position may be moving to Europe.... perhaps to the UK offices of AMV, which the company purchased a year ago. This is the second sudden C-level executive departure in the last 6 months.... back in June CFO Jay Wolfe was abruptly replaced by Russell Burke. As I've written about recently the company faces two critical issues going forward. First, they need more cash, and second, I think they need to decide whether they're a mobile adult entertainment company or a games company. Considering that the former is 87% of their revenue, and considering the current glut of competition in the mobile games space, I'd say the choice is pretty clear.

Naughty Is Looking Nicer At Mandalay Media

It's been just over a month since mobile porn & games holding company Mandalay Media (parent of Twistbox & AMV) reported it's fiscal Q4 and full year 2009 earnings and we're already seeing fiscal Q1 2010 (quarter ended June 30, 2009). Perhaps this indicates that the company is moving towards a more traditional reporting cycle...which would be nice. Anyway, the company actually had a decent quarter, considering the state of the World and the typical seasonality trends in the mobile content industry. They saw a little quarter-over-quarter revenue growth (2%), showed solid (89%) growth over the same period last year (thanks mostly to their Oct 2008 acquisition of UK-based AMV) and came within $1mil of (real) net profitability. Twistbox CEO (the guy running the whole show) Ian Aron is now guiding revenues to $40mil for FY 2010 (period ending March 31, 2010), which would represent 28% growth over FY 2009 ($31mil) and put them into my top 25 mobile entertainment companies.

What's becoming clear, if you look beyond their press release and into their 10-Q, is that Mandalay's adult business is working and that their games business is not. Adult now accounts for a whopping 87% of revenue (up from 82% in FY 2009). This is an area where the company has been (from back in the WAAT days), and still is, a legitimate market leader. If they can maintain their licensing/distribution relationships for high quality content, they should be able to realize meaningful, sustained growth as more distribution platforms open up to spicier fare. The games business, which is basically the Play for Prizes platform it acquired from Infospace in 2007, has never made money for the company. Mobile games is a saturated, over-crowded space with a few established power players and myriad nimble startups...Mandalay (Twistbox) is neither of these. I think the company should begin to seriously consider, if it isn't already, selling this business (and their unique platform) to a more established player like EA Mobile.

Selling the games business may help Mandalay with its biggest issue of the moment...which is a serious lack of cash. I expressed concern about this in my last post about their earnings, and things have gone from bad to worse. During the quarter they used another $1.7mil and currently only have about $4.2mil in the bank. That's not enough for a company that relies on expensive licenses, has a global operation with almost 200 employees and has monthly operating costs of about $2.5mil. The other lingering concern (which I also mentioned in July) is ongoing litigation with licensor Penthouse, which is seeking $4mil from the company for breach of contract. Mandalay is vigorously defending and has accrued for its estimated liability...but even if they win, a public squabble with a powerful player in a small licensing community can give a company a reputation (whether warranted or not) that's difficult to overcome.

Breaking Stories: Picsel & Mandalay

The Register is reporting that Scottish mobile file-rendering innovator Picsel Technologies may be kaput. If it's true, sad to see them go...good guys with good technology. Unfortunately, this is another mobile company that had a hard time figuring out who their customer was...carriers, handset manufacturers, IP owners? btw...that all said, gotta have a chuckle at the URL on The Register link, check it out.

Hot on the heals of my post yesterday about Mandalay Media's earnings, Mobile Entertainment revealed today that the company (through a subsidiary of its Twistbox brand) is an intensifying legal dispute with long-suffering former porn-powerhouse Penthouse over the payment of a minimum guarantee & product promotion. I would call this worrisome in light of Mandalay's reliance on premium adult content and their cash situation.

Earnings: Mandalay Media May Need More Cash For Tr... er, Quality Adult Content

LA-based mobile adult content and games holding company Mandalay Media (MNDL) announced fiscal Q4 (ended 31 Mar 2009) and 2009 fiscal year end earnings in a release today. The company, which is better known by its operating brands Twistbox & AMV, is spinning the release to emphasize that FY Q4 was its first with a positive adjusted EBITDA. Frankly, I'm not sure whether that's going to be the main takeaway. I was pretty distracted by their massive GAAP net losses (see below) stemming from a Q4 goodwill write off of $34.8mil, and after digging into their 10-K, concerns about their cash situation ($5.9mil at the end of March).

• 2009 Revs = $31.3mil ^878% from 2008 (partial operating year)
• 2009 Net Loss = $41.6mil compared to a $2.2mil loss in 2008
• Q4 2009 Revs = $9.9mil
• Q4 2009 Net Loss =$32.7mil
• Estimated 2010 Revs =~$40mil

Perusal of Mandalay's 10-K also revealed that their business is clearly dominated by adult content, which accounted for 82% ( $25.52mil) of their revenues versus 18% ($5.74mil) for games. I think mobile adult content has the potential to be a pretty good business WW for the top players in the space and in a previous post I suggested that these guys were pretty well positioned in the sector. However, in their report they admit that the competitive landscape in the adult content business is pretty intense and that some of their competitors are better funded. The company spent a pretty substantial $7.4mil on content licenses in 2009 (for adult content & games) and management cited the ability to continue to have access to that content (pay for it) as a key success factor going forward. Since the company isn't yet generating enough cash from operations for it's needs they'll have to find a solution in the financial markets to quickly bolster their cash situation, before this becomes a serious point of concern for them.

Mo'Bullet Snacks

• Mobile Industry cognoscenti continue to discuss the catastrophic launch of Nokia's Ovi Store
• Verizon Wireless announces it will start supporting Java for smartphones on its network
• KongZhong (KONG) hits 52 week high & announces new focus on mobile games
• Twistbox/Mandalay Media (MNDL) CFO Jay Wolfe steps down abruptly & is replaced by Russell Burke
• Multiple reports about depleted inventories of the current iPhone model fan rumors/speculation that Apple will announce a new model next week
• D7 demo of the Palm Pre, the announcement of iTunes support & concerns over June 6th launch-day inventory levels further enhance the hotness factor of this device
• Mobile Streams (MOS) continues to enhance it's porn portfolio with the launch of new UK D2C site Porncasa.mobi

Twistbox To Help Private Reach "New Penetration Levels" in $2.2bil Mobile Adult Content Market

...no, I didn't make that up, I didn't have to. Tim Clausen, VP of Sales at Private Media Group (PRVT) did in a press release today describing the Spanish adult content company's expanded worldwide mobile distribution relationship with LA-based Twistbox Entertainment. Specifically he said, "We look forward to increasing our mobile revenue through the new penetration levels we will achieve on Twistbox's vast distribution network." Funny. Moving on...this is actually a pretty big deal for Twistbox and their parent company Mandalay Media (MNDL)...a film production company founded by entertainment industry legend Peter Guber, that's morphed into a new media holding company. It reinforces their position as a leader in the on & off deck distribution of adult images, video and mobile TV channels worldwide (the company also has a mobile games division, which they acquired from InfoSpace)....and their stock price is up 77% on the news, in early trading today. Adult content is a pretty substantial business in Europe & Latin America where the carriers are much more liberal about (and not afraid of making money from) such content. Juniper Research estimated the WW mobile adult content market at $2.2bil in 2008 and a former content director at Vodafone famously said a couple of years ago that 70% of downloads on the carrier were of adult content. Shocking (not).