Special Report: Even by the standards of a listed ASX company, it’s been a busy couple of weeks for mobile and blockchain gaming company Animoca Brands.

Since March 26, Animoca Brands (ASX:AB1) has announced three strategic partnerships, completed a capital raise, made an acquisition, and released its annual report, which highlighted a 97 per cent yearly increase in operating revenue.

There was an announcement detailing the investment in and joint venture with Talenthouse, a platform that offers global brand clients such as Disney, Google, Amazon, and Samsung the services of over four million creatives and influencer marketers.

Most recently, Animoca Brands announced the appointment of Australian video games industry veteran Michael Ephraim as head of partnerships for Australia and New Zealand. The company has no trouble attracting the top talent – Ephraim was the managing director and vice president of Sony Computer Entertainment in Australia and New Zealand for over 22 years, and was part of Sony’s senior management team in Europe.

Ephraim joins a team that is already bursting with talent and experience, such as Ed Fries (creator of Microsoft Game Studios and co-founder of the Xbox) and Holly Liu (co-founder of Kabam, a gaming company that was sold for around A$1 billion).

Amid all this activity, the company’s share price has risen by more than 30 per cent since the start of March, as the company positions itself to leverage off rapid growth in key segments of the US$138 billion global gaming industry.

Wheelin’ & dealin’

Two of Animoca Brands’ recent agreements show the company is serious about leveraging the strength of globally recognised sporting brands,  particularly for the Asian market.

An April 3 deal with Lucid Sight gives Animoca Brands exclusive distribution rights in Asia for Lucid Sight’s portfolio of games, including its flagship blockchain title MLB Champions™  — an officially licensed product of Major League Baseball and the first blockchain game featuring licensed sports content.

That followed the March 26 announcement that Animoca Brands partnered with the world’s richest motorsport brand, Formula 1®, to develop the blockchain racing game F1® Delta Time.

The first part of the game, launching on May 10, will allow players to configure their ideal F1® car by collecting and trading non-fungible tokens (NFTs) — unique digital assets on blockchain that can’t be replicated and that enable genuine digital ownership and scarcity. That also creates demand (think of collectible baseball cards, or CryptoKitties).

Rounding out the company’s recent run of dealmaking, Animoca Brands entered into a binding term sheet on April 4 to purchase Stryking Entertainment for an up-front, all-shares consideration of A$1.58 million.

The Germany-based Stryking owns the popular fantasy sports game Football-Stars and has licensing agreements with the Bundesliga, Germany’s top football league, and the globally recognised football club Bayern Munich.

Through Animoca Brands, Stryking will now introduce blockchain functionality on its platform, where players will use NFTs to build a collection of digital assets based on their favourite soccer players and teams.

Animoca Brands co-founder and chairman Yat Siu said in a statement that the Stryking deal ties in with Animoca Brands’ strategy to “consolidate our leadership position in the blockchain sports gaming space,” by leveraging Stryking’s access to other leagues as it continues to build out its network.

“Almost like a blockchain version of EA Sports.”

The numbers don’t lie

Add it all up, and all of Animoca Brands’ recent deals tie back to the company’s core strategy: unlocking growth potential in the market for digital assets that allow true digital ownership.

The company saw the early potential of digital assets following the success of CryptoKitties, which lets users breed and trade virtual kittens using the cryptocurrency Ethereum. Last year it formed a partnership with the game’s creators Axiom Zen and Dapper Labs, making Animoca Brands the exclusive distributor of CryptoKitties in China.

The company’s hit original mobile games Crazy Kings and Crazy Defense Heroes also formed a core part of the company’s 2018 revenue growth, which increased by 97 per cent to A$12.77 million.

Animoca Brands’ cash pile also increased significantly, from A$687,000 the previous year to A$7.66 million at the end of 2018.

And according to Siu, the sheer size of the global games market means opportunities abound, but only for companies that position themselves adjacent to that growth with unique and relevant product offerings.

“The gaming industry is a US$138 billion industry, and over US$70 billion comes from in-game purchases,” he told Stockhead.

“But that US$70 billion is generated from only about three per cent or less of users. Think about it: that massive spend of US$70 billion comes from a measly three per cent or less conversion rate.”

“In our view, true digital ownership can increase conversion rates from the 1-3 per cent range where it is today.  The opportunity is powerful. For example: a conversion rate of around 10-15 per cent could mean that in-game purchases could theoretically exceed US$500 billion,” Mr Siu said.

“In other words, there is a massive potential benefit for the games industry to be had from even relatively modest increases in the number of consumers who make in-game purchases. We saw this occur with CryptoKitties, which reached US$25 million in transactions from a mere 30,000 players.”

Building on the blockchain

The acquisition of Stryking will include an earn-out fee of up to A$3.15 million, payable in cash or shares at Animoca Brands’ choosing.

To help fund the deal, the company completed a heavily-oversubscribed capital raising of A$4.6 million, funded by a mix of existing shareholders, Australian institutional investors, and global investors with interests in blockchain initiatives.

Among each of those sources, it’s the last group that Mr Siu says is the most exciting and unique to Animoca Brands’ growth strategy.

The capital raise “supports recent acquisitions and deals such as F1 and MLB Champions,” he said. “Importantly, it includes a number of new investors who are blockchain experts that are supportive of our blockchain strategy and NFT initiatives.”

“We straddle two financial universes: the first is the world of traditional financial markets such as the ASX; the second is the world of blockchain with its rapidly evolving landscape. Both offer fantastic opportunities, but these worlds do not yet intersect. We’re changing that.”

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This story was developed in collaboration with Animoca Brands, a Stockhead advertiser at the time of publishing.
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