Digital Media Sector Update Q3 2021 Summary
Core Content Overview
This report provides a comprehensive analysis of the digital media sector in Q3 2021, highlighting key trends, valuations, and notable transactions across public and private markets. It explores the challenges and opportunities facing the sector, particularly in mobile gaming, AdTech, and the Chinese EdTech and gaming industries.
Main Trends and Insights
Mobile Gameplay on the Decline
- Mobile gaming activity decreased in Q2-Q3 2021 due to easing social restrictions and a shift away from lockdown-induced gaming.
- The decline is attributed to factors such as the deprecation of IDFAs (Identifier for Advertisers) and the ongoing semiconductor chip shortage.
- However, this is expected to be a temporary slowdown, with the industry projected to resume growth by 2025, potentially exceeding $200bn in value.
Public Market Resurgence for AdTech Companies
- AdTech transactions and public offerings have increased, driven by the rebound in advertising spend post-pandemic.
- Despite initial fears of a cookie-less world, the industry is adapting with new innovations and strategies.
- Public market performance has been mixed, with some companies trading flat to down compared to their IPO prices.
Chinese EdTech and Gaming Adapt to Regulations
- The Chinese government has imposed strict regulations on profit-making after-class K-12 education providers, both online and offline.
- This has created new opportunities for in-class content providers and non-exam-oriented education sectors.
- Companies are exploring expansion into overseas markets to offset domestic challenges.
Key Transactions and Investments
Acquisitions and M&A
| Target |
Acquirer |
Value |
Notes |
| Pinkbike |
Outside |
Undisclosed |
|
| SpeedTree |
Unity |
Undisclosed |
|
| 7NXT |
Oakley Capital |
Undisclosed |
|
| AllTrails |
Spectrum Equity |
Undisclosed |
|
| GameRefinery |
Vungle |
Undisclosed |
|
| Fnatic |
Lv1 Group |
$19M |
|
| Voodoo |
GBL |
$312M |
|
| Starlink |
Zynga |
$525M |
|
| Parsec |
Unity |
$320M |
|
| Photon |
Skillz |
$50M |
Exit Games |
| KMAX |
Undisclosed |
Undisclosed |
|
| 1047 Games |
Lightspeed |
$100M |
|
| Jamgity |
Netmarble |
$350M |
|
| Nifty Games |
Undisclosed |
$26M |
|
Investments
| Issuer |
Lead Investor |
Value |
Notes |
| Photon |
Skillz |
$50M |
|
| AviaGames |
ACME |
$40M |
|
| Reddit |
Fidelity |
$700M |
|
| DistroKid |
Insight |
$130M |
|
| MakersPlace |
Bessemer Venture Partners |
$30M |
|
| Elodie |
Andreessen Horowitz |
$33M |
|
| Sorare |
SoftBank |
$680M |
|
Digital Media Indices
| Sector |
Avg. Rev Growth |
Avg. EBITDA Margin |
Avg. EV/Revenue |
Notes |
| Diversified online content & social media |
42.2% |
17.4% |
6.2x |
Snapchat posted 10% QoQ market cap growth |
| Music, video, photos |
19.2% |
14.1% |
4.9x |
Slight gains in margins |
| Western gaming |
25.1% |
34.0% |
7.2x |
Outperformed Asian gaming |
| Asian gaming |
7.3% |
25.4% |
4.0x |
Declined by 2.2% YoY |
Notable IPOs and SPACs
AdTech & Content
| Company |
Listing Date |
Performance |
Notes |
| Outbrain |
23-Jul-2021 |
-22.2% |
Trading below IPO price |
| Integral Ad Science |
31-Aug-2021 |
-12.5% |
Trading below IPO price |
| Kaltura |
21-Jul-2021 |
+1.8% |
Trading above IPO price |
SPACs
| Company |
SPAC Merger Date |
Notes |
| Taboola |
30-Jun-2021 |
Merged with ION Acquisition Corp |
| The Beachbody Company |
28-Jun-2021 |
Merged with Forest Road Acquisition Corp |
Industry Analysis and Commentary
Rule of 60 for Non-Gaming Digital Media
- The Rule of 60 assesses a company's health based on user growth, revenue growth, and profitability.
- In Q3 2021, 30% of selected companies closed above the Rule of 60 line, with Tencent leading in user growth at 50% YoY.
George Petrov, CEO of Coherent Labs
- Emphasises the challenges of game development due to rising expectations and the need for accessible talent and cost-effective tools.
- Coherent Labs provides game development tools that leverage web technologies, reducing costs and enabling more studios to create high-quality UIs.
Robin Thurston, CEO of Outside Inc.
- Highlights the importance of a balanced business model with subscription and advertising revenue.
- Advocates for thoughtful bundling strategies to improve customer retention and loyalty.
- Outside+ is a subscription offering that includes a range of content and services for active lifestyle enthusiasts.
Conclusion
The digital media sector in Q3 2021 experienced a mix of challenges and opportunities. Mobile gaming faced temporary declines due to regulatory and technical constraints, while AdTech companies showed resilience and adaptation. The Chinese EdTech and gaming sectors are undergoing structural changes, creating new market dynamics. GP Bullhound's activity in the sector reflects ongoing investment and strategic acquisitions, with a focus on innovation and growth. As the industry evolves, companies that can adapt to changing consumer preferences and technological shifts will be best positioned for success.
