Japanese carrier SoftBank and GungHo just paid $1.5 billion for a 51% stake of Supercell. What the heck is going on? Valuing Supercell at $3 billion is actually a lowball. Supercell has consistently generated more revenue than “Candy Crush Saga” creator King in recent months. Supercell has cracked a very difficult market in Japan, with “Clash of Clans” bouncing around Japanese top-10 iPhone sales charts since last June. Yet King is expected to generate $5 billion from its imminent IPO, even though “Candy Crush Saga” never broke out in Japan.
Finland is smoking hot in Japan. American app vendors from Electronic Arts to Zynga have fumbled badly in the crucial Eastern country. Yet over the past summer, Finnish app vendors including Supercell, Frogmind and Rovio have landed No.1 hits on the Japanese iPhone and iPad download charts.
Another Finnish vendor called Boom Lagoon just became the first Western vendor to cut a distribution deal with LINE. LINE currently dominates Japanese app charts, typically capturing half of the top-10 revenue chart positions with apps marketed via its messaging system.
American app vendors fear Japan — it is too alien for them. Meanwhile, Finland is a country of 5 million people and its core competence is to adapt to alien cultures and learn how they work.
Supercell may have accepted a lower valuation to get guaranteed marketing, customization and licensing support in Japan for all of its future games. The June cross-promotion between Clash of Clans and GungHo’s Puzzle and Dragons turned Supercell into the biggest Western app vendor Japan has ever seen.
The Japanese app market now generates 80% as much revenue as the American app market. Being the only truly successful app vendor in Japan can be far more lucrative than being just another European vendor battling for U.S. consumers’ attention. Supercell’s CEO, Ilkka Paananen, plays the long game. For him, giving up $2 billion in company valuation now in exchange for guaranteed hegemony in Japan for the next decade is well worth it.