Gamehaus courts investors with its China roots, international focus on casual games

The mobile game publisher has registered its New York IPO plan with China’s securities regulator, clearing a key final hurdle for its delayed New York SPAC listing

Key Takeaways:

• Gamehaus completed the registration of its SPAC-listing plan with the China Securities Regulatory Commission late last month
• The development allows the deal, originally expected to close by early this year, to move forward, even as the company faces challenges from a slowing gaming market

By Warren Yang

The appeal of smartphone-based casual games seems like a no-brainer. People love them because they’re easy to play and perfect for mindlessly killing time. But making such games is far easier than making money from them.

When Gamehaus Holdings Inc., which publishes mobile games, finally goes public after a lengthy delay in its plan to merge with a special purpose acquisition company (SPAC), it will probably face a plenty of investor skepticism about its ability to maintain its growth story over the longer term.  

Last month, the company formally registered its SPAC listing plan with the China Securities Regulatory Commission (CSRC), clearing a critical regulatory hurdle that was seemingly a factor in the listing’s lengthy delay. The plan dates back more than a year to September 2023, when the game publisher signed a definitive deal with Golden Star Acquisition Corp. (GODN.US) for a New York backdoor listing that would give that company an enterprise value of $500 million.

At that time, Golden Star said it expected the transaction to close in the third quarter of 2023 or in early 2024. But things didn’t happen that way, and last May the SPAC canceled a shareholder meeting to vote on the deal, citing failure to fulfill a CSRC filing requirement. That condition stems from a rule implemented in March last year, requiring Chinese companies to officially register any overseas listing plans with the regulator in advance.

Golden Star and Gamehaus have yet to release any updates to their merger plan since the CSRC’s official announcement of the plan’s registration on Nov. 22.

It’s not clear what took the Gamehaus listing so long to get registered, though Reuters reported last week that the CSRC met with major investment banks and law firms in October to seek their help with its own efforts to speed up offshore listings. With its listing finally registered, the next – and equally difficult – challenge for Gamehaus will be selling investors on why they should buy its shares.

As a game publisher, Gamehaus essentially invests in game developers and distributes their games. It handles all costs required to bring those games to market, from actual development expenses to fees paid to distribution platforms like the Apple and Google Play app stores. After a game is released, the company recoups its investment by taking a cut of the revenue generated by the product.

Gamehaus targets small- and medium-sized mobile game studios, which probably are most in need of funds. The company’s primary focus is on hyper-casual games — particularly social casinos that are basically smartphone-based casinos where people can bet using virtual money. But it also plans to spread its wings a bit by moving into slightly more serious games in the casual and midcore segments, which include things like simple puzzles and strategy games.

Such a move puts Gamehaus in a zone chasing gamers who aren’t too casual but also aren’t too hardcore either, occupying a middle ground where it believes there’s money to be made. There’s plenty of logic to that thinking. Hyper-casual games can be too easy and quickly become boring for savvy players. And games at the other end of the difficulty spectrum can be too daunting for non-serious average Joes.

International focus

From a financial standpoint, hardcore games represent the largest single segment in the global mobile game market, accounting for about 40% of total industry revenue, which amounted to $111 billion in 2022, according to third-party data cited in Golden Star’s prospectus-like document filed after the merger announcement. But casual and midcore games together make up a little more than half of the market, and hyper-casual ones that have been Gamehaus’ traditional focus account for the rest. So, the company’s decision to branch out into the new genres seems strategically sound, at least on paper.

Gamehaus is also strategically targeting international gamers, instead of its home China market. This seems sensible, given high regulatory risks in the country despite its large size. The dangers of operating games in China became more evident than ever in 2021 when the government took the drastic step of limiting access to online games for minors and suspended approvals of new titles for a while.

But the international market is by no means an easy one either. For starters, the global mobile game market is large, but its growth looks set to slow. The global industry is expected to grow about 3% annually in revenue terms between 2023 and 2027, slowing from about 10% between 2017 and 2022, according to a projection by market research firm Frost & Sullivan.

Competition is also fierce, especially from other Chinese companies that collectively make up more than a third of the 100 largest global game publishers in terms of revenue. Among the top players are giants Tencent (0700.HK) and NetEase (9999.HK), which are also both active globally, and taking market share from them won’t easy for smaller companies like Gamehaus.

Developing titles that can generate revenue in the more casual gaming space isn’t so straightforward either. Many mobile games are available for free but charge players for additional items or carry advertisements. Thus, development of games with monetization potential requires sophisticated analysis that includes understanding preferences of different markets, which are frequently evolving. And any miscalculations can be costly.

That said, Gamehaus is no small fry in its casual gaming niche. Its revenue increased 19% to $168 million in 2023 from the prior year, which isn’t too bad. But its marketing expenses swelled more than 50% as it worked hard to promote its games, with the result that its operating profit was largely flat at about $3.1 million.

Because it’s using a SPAC to list, the company has only disclosed limited financials so far and won’t be required to provide more complete information until it formally completes its backdoor listing.

Gamehaus’ enterprise value, based on its announcement when it first announced the listing plan last year, is about 3 times its 2023 revenue. That’s lower than 5.5 times for Tencent, but roughly in line with the 3.2 for NetEase, which is quite profitable. So, the company’s valuation for its SPAC deal is roughly what you’d expect, and even on the strong side.

Whether it can maintain such a valuation will depend on whether it can stand out in the crowded field of game publishing, especially as the industry heads into a new period of slower growth. Strong profit metrics would also help to make its case with investors, which means all eyes will be watching for its first official financial report after it completes the listing.

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