What's Plaid worth? And the highs and lows of selling video games
What's Plaid worth? And the highs and lows of selling video games
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What’s Plaid worth? Forbes reported a slew of critical datapoints regarding Plaid’s growth — or lack thereof. The fintech darling saw its revenue expand 12% last year to $308 million, about half its 23% 2022 growth rate. The company — on track to lose $50 million this year, down from $70 million in 2023 — expects 20% growth this year, Forbes writes, and has several years of cash in the bank.
For comparison, Block grew revenue 12% in its most recent quarter, its gross profit 20%, and posted improved operating income and adjusted EBITDA.
And it’s worth 1.75x trailing sales, per Yahoo Finance data.
Plaid at a 10x multiple, fintech venture capitalist Sheel Monhet wrote that the company — inclusive of expected 2024 growth — would be worth about $3.8 billion today. Maybe.
The WordPress drama is impacting customers now: I had watched the current scrap in the WordPress world with something approaching good humor. A righteous public spat in technology? In 2024? Situations of this sort feel few and far between in recent years, but they are useful when they crop up — they can help explain underlying tensions in the business world that were previously occluded.
Now the situation getting more serious. After a broadside public presentation and a cease-and-desist letter in response, WordPress co-creator and CEO of Automattic, Matt Mullenweg, has revoked WPEngine’s access to “the platform’s resources, such as themes and plug-ins,” TechCrunch writes.
Now WPEngine is forced to tell its customers that “WordPress.org has blocked WP Engine customers from updating and installing plugins and themes via WP Admin.”
Nasty. At debate here are open-source projects and how private-equity-backed or owned companies behave in open-source spaces. And how much one man can absorb criticism for what appears to be a sort of stunt-whining-martyr play.
The joys of building and selling video games
When I was a wee reporter learning about venture capital, I was told early that video game investments were a big no-no. That surprised me — after all, video games can sport attractive gross margins, and with modern developer tools helping even small teams reach big audiences, why wouldn’t gaming be a rich vein for VCs to mine?
The answer is the inverse of why SaaS was as popular as it was: revenue predictability.
In the business-software-as-a-service world, companies often buy more of your product over time as their usage expands. That means your revenues from a customer tend to rise over time, and gross churn is usually pretty modest. Games don’t have those same dynamics, and with releases often years apart, even successful franchises can turn in highly variable top-line results.
Which is icky if you want to convert shares into liquid value; this is why companies with revenues that are cyclical trade for lower effective revenue multiples than their SaaS peers, all else held equal.
The fact that video games are hard to back if you are a VC aside, there are some smaller gaming shops that did well enough to go public over in Europe. As a private and public markets dweeb, this is great fun; I get to see how games companies work year to year, and regular gamers can back them if they want.
That said, the learning that I’ve mostly garnered from watching 11 bit studios and Paradox lately is that VCs might have a point.
11 bit studios is the company behind hits like Frostpunk and This War of Mine. The company also publishes games from other developers. It recently released Frostpunk 2, the much-awaited sequel to its Frostpunk survival city builder. Frostpunk, by the by, was good. I sunk a lot of time into it, and I cannot recommend it highly enough.
But with Frostpunk 2, 11 bit didn’t just make an updated version of its earlier hit. The studio took a risk and changed the scale of the game. With positive reviews over the 70% mark, 35,533 peak online players on Steam after launch, and the studio announced that it sold, very quickly after releasing the title, more than 350,000 copies, which “covered the costs we spent on producing and marketing the game,” you might think that investors were content with the result.
No. They were not. Reuters:
Shares in Polish video game maker 11 bit studios, opens new tab slumped 38% on Monday […] after the number of players of the company's flagship "Frostpunk 2" game failed to meet market expectations shortly after its release.
An analyst weighed in that they were expecting a number more like 80,000-100,000 concurrent players after Frostpunk 2 came out; concurrent gamers are a metric that external parties can use to estimate total sales volume. Lower concurrents, lower expected revenue. Down went the stock.
All told, 11 bit has seen its value cut in half in the last few trading days, falling from around 620 złoty to 314.50 today, inclusive of a 5% rebound this morning. Brutal results for a studio following up a hit that was released back in 2018.
I have yet to buy and play Frostpunk 2, not because I am worried that I won’t love it — I will — but because Factorio currently has its hooks to deeply into my psyche for me to tickle a new title. Regardless, my heart bleeds for 11 bit — here’s hoping that their eventual financial reporting comes in ahead of now lowered expectations.
As an aside, it’s cool that 11 bit studios is a public company. In the first half of 2024, it reported EUR7.1 million in total revenue. That’s far smaller a revenue result than we expect for public companies here in the United States. Given that we are seeing the total number of domestic public companies decline — perhaps we could take a page out of Poland’s book here?
11 bit is not alone in making great games, and having A Time Of It on the public markets. Also hailing from Europe is Paradox, the company behind games that have consumed my life (Crusader Kings III), and games that I have purchased and intend to learn at some point in the future (Victoria III, Eu4, etc).
Shares of Paradox traded over the 300 SEK mark last year, but today are worth just 172.40 SEK per share. What happened? The troubled release of a critical new game — see a pattern? In Paradox’s case, the sequel to megahit Cities: Skylines made it to market underbaked. Gamers were peeved, and many still are. The game itself was actually a title that Paradox published instead of developed — like 11 bit, Paradox does both — but it was clearly a big miss regardless. And Paradox wrote off a game that it was working on called Life of You. Both events weighed on its results.
We won’t get updated numbers from either company for a little while, but I think that the fact that 11 bit and Paradox are success stories, with storied franchises under their belt, make it clear how hard it is to make consistent money in games in a manner that public-market investors will find attractive.
There are other ways to build games, of course. Larian Studios is indie and still basking in the glory of its mega-hit Baldur’s Gate 3 that — in contrast to Frostpunk 2 — which continues to garner nearly 100,000 daily concurrent players.
How did Larian manage to sell so many copies of BG3? Did it need to lean on venture capital or similar? No, it turns out. And its taking a deliberate approach to its work that eschews the boom-and-bust cycle that has hit many a gaming studio over the years.
Larian’s founder Swen Vincke has been outspoken on the recent wave of layoffs that have hit gaming companies. He criticized layoff culture at gaming companies:
I've been fighting publishers my entire life and I keep on seeing the same, same, same mistakes over, and over and over. It's always the quarterly profits. The only thing that matters are the numbers, and then you fire everybody and then next year you say 's**t I'm out of developers' and then you start hiring people again, and then you do acquisitions, and then you put them in the same loop again, and it's just broken.
He offered a different approach:
"You don't have to," Vincke went on. "You can make reserves. Just slow down a bit. Slow down on the greed. Be resilient, take care of the people, don't lose the institutional knowledge that's been built up in the people you lose every single time, so you have to go through the same cycle over and over and over. It really pisses me off."
But do you know what companies can’t afford to slow down? Venture-backed startups. Looping back to where we started, yeah, maybe gaming companies are technology companies and artistic projects at the same time. And that latter element is probably why they can be harder-than-average to return venture-grade DPI to LPs.