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Analysis of Funcom's Q2 numbers and Age of Conan's (AOC's) future.
Litigator_AB
Member Posts: 311
Introduction:
First of all, I am not going to discuss the validity of the 415,000 subscription number. They realize their playerbase has been truncated substantially and Funcom will for the next 3 months be trying their absolute best to salvage AoC.
And that is another reason why they are not going to provide financial guidance in future quarters. What they will attempt to do is hit the low end of their Q3 revenue guidance (16 million) while significantly lowering their expenses through the downsizing of their main costs: advertising and promotion.
Their revenue guidance is an interesting snapshot into their future.
1. 16-20 million in Q3 revenue (excluding Plutolife) means they expect subscriptions from AoC over the next 3 months to = ~13.5 million - 17.5 million dollars. (Subtract from the 16-20 million anticipated revenues 1.5 million from previous Funcom revenue streams (AO and cellular services) and 1 million from AoC box/digital sales. This data is taken from previous quarters prior to AoC's release and a guess regarding future box sales. Realize if box/digital sales are better than this the following subscription scenario will be worse and not better.
2. We will use the low-end snapshot of this revenue prediction to mimic what Funcom actually expects. It is telling that their financial guidance fluctuated 400% in one quarter and obviously accounts for the serious situation AoC faces.
3. We will use their financial guidance and estimate revenue of 13.5-17.5 million from subscriptions for Q3. Substantially this will be subscription periods ranging from July 15 - July 30, August 15 - August 30, and September 15 - September 30. Realize these are just snapshots in time...we are trying to figure out how Funcom anticipates their subscriptions to run in Q3.
4. We will assume 415,000 subscriptions is accurate for August 14th. As you will soon see, no matter the truth/accuracy of this statement, Funcom is in a serious bind.
Analysis:
There are two assumptions I make in this analysis. That Funcom is bleeding subscribers continuously. If you disagree with this assessment, ignore this post. Moreover, as per point 4, I assume that 415,000 subscribers is a snapshot in time as of August 14th.
a) If Funcom had 415,000 subscribers yesterday then, according to assumption one, Funcom had a larger subscription pool July 15-30 (our first month in the three month snapshot in time). We will estimate this number to be 500,000-600,000 @ 14 USD a month. 14 USD is a reflection of monthly subscription costs being lowered due to longer subscriptions. It does not include expenses such as credit card transaction costs and other distribution rights to revenue (whatever those may be). Those costs are detailed in operating expenses. Revenue from this month's stream will be between 7 million and 8.4 million USD.
b) If Funcom had 415,000 active subscriptions as of August 14th then according to assumption one the August 15 - August 30 snapshot will be less. We will estimate 350,000-400,000 (less variance due to the explicit number given in the report). The revenue from this is between 4.9 million and 5.6 million USD.
This leaves us with an anticipation of what Funcom expects from Q3. The variance established is between 11.9 million USD and 14 million USD from two months in Q3. To reach their revenue projections, using our lowest variance to reach their lowest guidance, and vice versa, September 15 - September 30 will result in revenues of 2.1 million USD to 3.5 million USD. Translated into subscriptions, it means Funcom is anticipating 150,000 to 250,000 active, paying accounts by the end of September.
Conclusion:
This does not bode well for Funcom. If Funcom had 415,000 subscriptions as of August 14, 2008 then Funcom is expecting massive attrition in the upcoming months. If the number is subscriptions as of June 30 the picture is quite a bit brighter and they are estimating ~300,000 subscriptions as of the end of September 30. If not, and the numbers are indeed from August 14, the number anticipated is closer to 200,000 +- 50,000. These numbers assume Funcom hits its revenue targets.
Prognosis:
1. If Funcom misses its revenue target by 1 million dollars (15 million USD)
a) June 30th @ 415,000 subscriptions = September 30 subscriptions of ~225,000
b) August 14th @ 415,000 subscriptions = September 30 subscriptions of 75,000-175,000
2. If Funcom misses its revenue target by 2 million dollars (14 million USD)
a) June 30th @ 415,000 subscriptions = September 30 subscriptions of ~150,000
b) August 14th @ 415,000 subscriptions = September 30 subscriptions of 20,000-100,000
Disclosure: I have a substantial short position with regards to Funcom.
Lit
Comments
Lol why take the time to do this?
That makes absolutly no sense
"a" should be lower than "b"
I think people are making too much out of the August 14th thing.
Most MMORPG's do this.
They take a single 'snapshot' of subscribers. In Funcoms case they took this on June 30th.
Now, until they take another snapshot, they continue to use those numbers as 'current' until they take another snapshot, which they are probably purposefully not doing. In other words, they can continue to say 415k right up until they have to do another snapshot at the end of Q3.
I'm a Blizzard fanboy, but I know that Blizzard also does this. Somewhere they release 10.9 million subscribers, and then it continues to get used for 4 months afterwards.. even though most people realize that it's probably not still 10.9 million.
The thing that is outright deceptive about that 415k number is that they include people that are still in their free months, so didn't actually subscribe to the game. Most of us kinda knew this was going to happen though... you can just tell by the way Funcom releases finanical information that they are going to twist it to the verge of lying.
It really doesn't matter what the Q3 subscription numbers are.... the big thing will be the profit/loss situation. Funcom was counting on profits from AoC to fund future games.. if they can't even break even with AoC, they have no hope for development of new games
btw.. funcom stock at 16.90 Lowest in 3 years.
It is part of my personality to not do things half-assed.
Lit
That makes absolutly no sense
"a" should be lower than "b"
Yes it does. Read the post and read Funcom's revenue guidance. Higher subscription numbers in July and August means they expect less revenue in September. If they didn't expect substantial attrition its revenue guidance would have been notably higher.
Lit
Yes it does. Read the post and read Funcom's revenue guidance. Higher subscription numbers in July and August means they expect less revenue in September. If they didn't expect substantial attrition its revenue guidance would have been notably higher.
Lit
I can't read marketing stuff, it gets scrambled in my brain even with my 150 IQ... but I do know this
If subscriptions June 30th were 415k, numbers should decrease more than if the subscribers are 415k now. They have more time to drop, it's just pure simple logic
That makes absolutly no sense
"a" should be lower than "b"
Here is the reason A is higher than B
If I tell you that at the end of 3 months, I'm going to make $10. But during the first two months of that period I've already made $9. Then you can guess that in the final month I'm only going to make $1. That is basically what Funcom did (assuming the 415k is as of Aug14th). They told us how much they plan on making for the 3 months, and they basically are telling us how much they made the first part of it. So we can assume they are expecting to make substantially less the last month.
Now if the number is not 415k, but is substantiall lower now So instead of already having made $9 in the first two months, I have only made $7 so far... so now in the last month, you know that I'm going to make $3.
FWIW.. I think the August 14th subscription numbers was a reporting error. I think Funcom's 3Q revenues will be much flatter
That is part of the reason why I wrote this at 5 am in the morning. Watching Funcom stock get obliterated is making me a tidy profit and my adrenaline is flowing nicely. I'm going to be an absolute zombie at work in a few hours though. Bring on the Red Bull.
Lit
and yet dear Mr. OP you post this posts anyways...
What really is interesting is the Blizzard'hs chairman was out saying that yes, we do see people leaving to try out AoC, 40% of them returns to us. That actually means that 60% doesnt return but stay in AoC. Thats a lot. Funcom must have done something right in that game.
I think I got it... They are targetting on certain amount of dollars during a fiscal period. If they can retain people longer ingame, they can lose more subscribers later and still hit the target, right?
Playing: AC2
Played: UO, DaoC, Horizons, Ryzom, WAR, LotRO, Eve, VG...
So basicly it would mean that if there was 415k subscribers now then Funcom expect a HUGE drop that makes no sense. Which tells us that 415k is really june 30th and right now it's much lower already. Otherwise why would they expect such a weird drop
Mitara: No, in these 60% half probably didn't stay with aoc. They either went to other mmos or left them alltogether
So basicly it would mean that if there was 415k subscribers now then Funcom expect a HUGE drop that makes no sense. Which tells us that 415k is really june 30th and right now it's much lower already. Otherwise why would they expect such a weird drop
Here is the jist of it:
a) If Funcom's subscription numbers were from June 30 then that means Funcom will require almost no attrition in Q3 to hit their revenue goals. Having played the game, I know this is not the case. Ideally (at least for me) I would LOVE for 415,000 to have been the June 30 number. It means Funcom's Q3 is going to be an absolute disaster. Unfortunately it is pretty clear that the number is for August 14.
b) If the numbers are from August 14th, it shows a steady, linear decline in subscriptions. Given forum and server traffic this is intuitively the case.
Personally I was surprised at the high subscription number listed for August 14th. I thought it was substantially lower. That being said, Funcom is obviously not expecting to retain 415,000 subscribers. Its revenue target simply has to be predicated on 415,000 subscribers as of August 14. Otherwise Funcom is going to get massacred in November.
Lit
Mitara,
What you are failing to state was that the Blizzard chairman said those things near the end of June. Within 1 month of AoC release.. 40% of the people who cancelled their accounts had already come back. I'm not going to guess, but it's probably much higher by now.
The other important thing is that WOW is at the end of an expansion cycle. They are just about to put out a new expansion. A lot of players are a bit bored waiting for WotLK, so they are out trying new games. Every game has this kinda 'melencholy' feel to it the few months before an expansion gets released. This is the reason both AOC and Warhammer rushed their launches.... so the bored WOW players will give them a chance before going back to WotLK.
I would say the last nail in this coffin will be on Sept. 18th and i bet the folks at Funcom know it also.
MAGA
How is it not linear if the numbers are from June 30th? They never announced any other sub numbers as far as I know so whichever it is doesn't affect how linear it is. June 30th seems the most logical to me
and then watch..*POOF!!!!* out of nowhere failcom releases a patch on Sept 17th that miraculously fixes EVERYTHING that made players hate the game in the first place lol. Sorry but Im jumping on the WAR bandwagon...its going to slaughter AoC.
I agree
MAGA
How is it not linear if the numbers are from June 30th? They never announced any other sub numbers as far as I know so whichever it is doesn't affect how linear it is. June 30th seems the most logical to me
If the numbers are from June 30 then Funcom is experiencing almost zero subscription attrition. If there was said linear decline from June 30 then Funcom is going to miss its Q3 revenue estimates badly and Funcom will be a $5 stock. I certainly wouldn't complain.
I actually expected a positive bounce in the stock price from these numbers. I was pleasantly surprised with what transpired today.
Lit
One official report approved and issued by a supervisory board, giving figures for Q2 june 30th 2008.
The other a powerpoint presentation which has been made by some unknown funcom employee which seems to twist the facts and give misleading info on subscribers.
which one should you belive?
well lets break it down.
Official report has figures pulled in an audit on june 30th , they are collated and put together in a document,
they are passed on to a supervisory board to check out confirm and make sure they are correct.
then the official financial report is given a release date for 14th august.
IF funcome were wanting to add August 14th figures to this report they would have to resubmit there figures and it could no longer be classed as Q2 and would not be eligble for releaase.
on the other hand you have a number of people who know nothing about audits and a nub at funcom grabs some figures from the official report , adds a bit of a spin makes a powerpoint presentation dates it 14th and suddenly its factual.
Negative. AoC is not Funcom's only revenue stream and it's becoming continually less of a factor. Most of the big expenditures involving AoC have already been accounted for. Even if [i]everyone[/i] quits AoC Funcom won't get massacred.
Funcom has no other substantial revenue source other than AoC to support 300 employees. Factoring in reductions in advertising and AoC promotion Funcom still requires 13-15 million a quarter in revenue to break even.
If Funcom reigns in its other projects to cut costs, it will hurt its future revenue growth. This is the litmus by which investors base their investments in small companies such as this.
Funcom requires AoC to be successful to maintain its future plans and potential growth.
Lit
I've read many financial reports before and the qualitative portions often include movement from the current quarter. The present tense usage and the explicit Funcom presentation datum make it pretty clear that 415,000 is for August 14. Moreover, Funcom's revenue estimates for Q3 really make no sense without it being from August 14.
Lit
can you please point out to me on the official document where it states subs are taken at the 14 of august 2008?
http://www.funcom.com/funcom/frontend/files/CONTENT/Funcom_Q208_presentation.pdf
Lit
http://www.funcom.com/funcom/frontend/files/CONTENT/Funcom_Q208_presentation.pdf
Lit
hahaha thats a presentation it has in not been aproved by any one its about as legal as a hotdog, its not a financial report.
thought you had read many or were they all powerpoint presentations?
http://www.newsweb.no/newsweb/index.jsp?messageId=216375
link the correct document in future
Huh? Once again you make no logical sense... I'm sorry but either business is not logical or sleep deprivation finally got to me
If the numbers are from August 14 then they have almost zero subscription attrition, not June 30th...
Let's pretend your right, this would mean this...
May 20 - Launch
May 26 - 400k Players
June 30 - 700k Account created (includes those who quit)
June 30 - 415k Subscribers (Q2 Report - debatable)
August 14 - 415k Subscribers??? (No drop whatsoever, huh?)
Sorry but you make no sense, 415k subscribers June 30th is the only logical conclusion based on all this. August 14 is an obvious lie and doesn't make any logical sense.
Edit: Hahaha, just noticed!
700k Accounts - 415k sub = 285k 400k - 285k = 115k
which means that only 115 000 people of the first 400 000 stayed past the free month!!!