pwc national accounting challenge (national finalist)

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Recommendation to Pandemonium TechnologiesJanuary 22th, 2016 | The Apex Group

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The Apex Group“The Pinnacle of Consulting”

Introduction Recommendations Implementation Conclusion

Ads AndroidFreemium

Duncan Heidkamp Shelby Williams

Vismay Pandia Richard Cao Aziz Specter

3

King Digital Entertainment

Market OverviewSummary Key Players

Mobile Application Usage Industry Revenue Growth

• The mobile application market is made up of software companies primarily operating through smart phone app marketplaces

• The industry has experienced consistent growth over the last 6 years

• The application market will continue to grow as smart phone sales increase

Games47%

Social Network-ing

32%

News9%

Entertainment7%

Other5%

10 11 12 13 14 150

20406080

100120140

% G

row

th

*IBIS World

Zynga Inc.


Ads AndroidFreemium

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The Mobile Application Market

*Bloomberg, The Observer, Tech Crunch, IBIS World

82.80%

13.90%

2.60% 0.30% 0.40%

AndroidiOSWindowsBlackberryOther

Operating System Breakdown


Ads AndroidFreemium

Capital Intensity

Economy

Information

Smartp

hone App Developers

$0.00

$0.10

$0.20

$0.30

$0.40

5

Our UnderstandingHistory Apps

RevenuesFacilities

Ultimate Juggle | 2010Revenues through FY’14 $34,220,342Ultimate Juggle Plus | 2012Revenues through FY’14 $18,562,819

Ultimate Juggle Warrior | 2013Revenues through FY’14 $3,981,780

2015Data not available

A'12 A'13 A'14 E'15$0

$5,000$10,000$15,000$20,000$25,000$30,000$35,000

895412596

19467

30086

Reve

nue

in 0

00s

+


Ads AndroidFreemium

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Current Revenue Stream

FY2012 FY2013 FY2014 FY2015E $-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000


Ads AndroidFreemium

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Recommendations

Implement “Freemium” Structure

Integrate In-App Advertisements

Expand into Android Market

1

3

2


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Implement “Freemium” StructureRecommendation 1


Ads AndroidFreemium

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FreemiumSummary• Marriage of the words FREE & PREMIUM• Give base product away at no cost and

sell premium components • Main objective is to make money from

multiple purchases by a small percentage of users versus the traditional method of one single, upfront purchase

• Free-to-play instead of pay-to-play model cash comes through engagement with consumers

Total iOS Revenue (November 2013)

*freemium.org,www.developereconomics.com/mobile-gaming-dirty-secret/

92%

4% 4%

Free w/ In-App PurchasesPaid w/ In-App PurchasesPaid Only


Ads AndroidFreemium

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Engaging Users


Ads AndroidFreemium

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Integrate In-App AdvertisementsRecommendation 2


Ads AndroidFreemium

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Banners: $0.20-2.00

Interstitials: $3.00-5.00

iOSBanners: $0.15-1.50

Interstitials: $2.00-4.00

Android

AdvertisingCPM Cost Per Thousand Views

App RevenueBy Country, 2015

India

German

yFra

nce U.K.U.S.

Brazil

Russia

Canad

aJap

an

South Korea

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

OtherAdvertisements

*MonetizePros, VentureBeat


Ads AndroidFreemium

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Data CollectionDemographics

Number of Times per Day

Time Spent per Session

Revenue per User

$#Day User


Ads AndroidFreemium

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Data Access & StorageCompany Purpose Description

Data Access Large social media player with access to data with sign in

Data Storage Option to storing data with cloud, by hard drive, or both

Data Storage Option to storing data via cloud


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Business Model

Advertisers

Other

Data

Filter User Data

Pays Pandemonium

Analyze Consumer Base

Sell Data to 3rd Parties

Uses Juggle App

Sign into Facebook

Users


Ads AndroidFreemium

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Revenue Flow

Users

$$$$ Advertisement Revenue

In-App Purchases

Per Visit Per Advertiser

Enhanced Game Play

Ad Removal Upgrades


Ads AndroidFreemium

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Expand into Android MarketRecommendation 3


Ads AndroidFreemium

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Demographics

Advantages Development Speed

App Users

Median Income

Mobile AVG Cost

62.6 76.1

$85,000 $61,000

$600 $350

Android: Largest global platform, comprising in lower income and developing nations iOS: Compromises of higher income users who tend to spend more per app

Android: 2-3 times longer to build because of OS release cycles and Android fragmentation; quicker updatesiOS: Faster to market

Android

*Savvy Apps, App Annie

Mar

ket

Shar

eRe

venu

e


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International ExpansionSpecifications Khayali Tuong

Tax 18% 16%

Requirements 25% citizen w/ 4 years

85% citizen w/ 4 years

Population 43 million 11.5 million

Choice

Khayali will match or exceed any incentives provided by Tuong


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TimelineYear Y1 Y2 Y2

Quarter Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Freemium

• Programming

• Integration

• Phase out P2P

Advertisement

• Integration

• 3rd Party Data Sales

Android

• Android Conversion

Expansion

• Moving

• Use of Facilities


Ads AndroidFreemium

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Operating Costs and Breakeven

2012 2013 2014 2015E $-

$2,000 $4,000 $6,000 $8,000

$10,000 $12,000 $14,000 $16,000 $18,000

Other

Acquisitions

SG&A

R&D

$16,827,000

Driven by 40% YoY R&D growth2% YoY SG&A growth


Ads AndroidFreemium

Cost Structure Projected 2015 Operating Costs

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Forecast ModelRevenue Growth and Profit Expansion

FY12 FY13 FY14 FY15E

-19.49%

-13.94%

-9.95%

0.57%

FY12 FY13 FY14 FY15E $-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$8,954

$12,569

$19,467

$28,549

40100

Revenue (in $000s)

P2P Freemium

Profit Margin 12.53%


Ads AndroidFreemium

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Diversity in ThoughtCommunity EngagementCatalyst for Change

What Can Bring to Pandemonium

Freemium

Advertisements

Android


Ads AndroidFreemium

24Introduction Recommendations Implementation Conclusion

Ads AndroidFreemium

Q&A

Risk AnalysisFinancial Statements

PEST

Tetris Blitz Case Study

Predictive Modeling

Profitability Analysis

Freemium Model Assumptions

Cross Variable AnalysisTimelineForecast Model

Product Life Cycle

Market Share

User Growth

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Risk AnalysisRisk Severity Mitigation

Intellectual Property Protection in South East Asia

Support the TPP and utilize selective hiring; have a collaborative relationship with management in the area; invest in firewall securities

Lack of Customer Acquisition (Reaching Targets)

Use creative advertisement to bring in new consumers and increase excitement around the app opportunities

Failed Implementation Conversion of one app at a time to test “freemium”; increase predictive analytics to time the release of new games

Appendix

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Financial StatementsPeriod Ending (in thousands) FY14 FY13Cash And Cash Equivalents 4,912 4,496 FY14 FY13 FY12Net Receivables 1,634 1,305 Total Revenue 19,467 12,569 8,954 Other Current Assets 2,290 1,663 Cost of Revenue 6,780 4,348 3,450 Total Current Assets 8,836 7,464 Gross Profit 12,687 8,221 5,504 Property Plant and Equipment 2,716 3,096 Research Development 8,700 5,430 3,987 Goodwill 5,964 5,964 Selling General and Administrative 4,350 3,001 2,950 Intangible Assets, net 2,524 4,450 Acquisition & integration 150 750 --Other Assets 364 367 Other 175 170 164 Total Assets 20,404 21,341 Total Operating Expenses 13,375 9,351 7,101 Accounts Payable 2,688 2,733 Operating Loss (688) (1,130) (1,597) Other Current Liabilities 2,733 3,224 Total Other Income (Expenses), Net 107 10 (123) Total Current Liabilities 5,421 5,957 Loss Before Interest and Taxes (581) (1,120) (1,720) Other Liabilities 3,936 3,357 Interest Expense 1,300 600 1 Long-term Debt 13,000 13,000 Loss Before Tax (1,881) (1,720) (1,721) Total Liabilities 22,357 22,314 Income Tax Expense 55 32 24 Common Stock 8 8 Net Loss (1,936) (1,752) (1,745) Accumulated Deficit (4,147) (2,211) Additional Paid in Capital 2,186 1,230 Total Stockholder Equity (Deficit) (1,953) (973) Total Liabilities and Stockholder Equity (Deficit) 20,404 21,341

Financial Statements Pandemonium FY14Balance Sheet Income Statement

Period Ending

Appendix

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P EST

Khayali• Pro-investment Policies• Pro-immigrant• $10 minimum wage• Must stay for 4 years

with 25% of staff are citizens

• Political turmoil

Tuong• Must stay 4 years

with 85% of staff are citizens

Khayali• Taxed at 18%• Cannot transfer losses

to another company; can deduct dividends

• 5% unemployment rate• 3.4% inflation rate• Free enterprise• Strong export industry

Tuong• 16 billion economic

stimulus plan• Taxed at 16%• 5.2% inflation rate• 5.2% unemployment

rate

Khayali• Well developed

infrastructure• Strong in electronic

exports

Tuong• Biggest producers

of computer disc drives

Khayali• Domestic turmoil• Debt to GDP ratio is

over 80%• Supportive and

interested government

Tuong• Multiethnic &

multireligious• Well educated• Urban population

Political Economic Social Technological Analysis

Appendix

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Tetris Blitz Case Study

Background Action• Tetris existed on both Apple and Android

markets for several years• They were running on the pay-to-play model at

$2.99 an app• Tetris allowed for Facebook connection and

multiplayer capabilities

• Announced release of Freemium Tetris app called Tetris Blitz (Feb. 2013)

• Decreased price of $2.99 Tetris game to $.99 (Nov. 2014)

• Tetris Blitz is a high-score based game linked to Facebook accounts

• Tetris Blitz has since become a huge success amassing over 1 million downloads and successfully integrating in-app-purchases

Appendix

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Profitability AnalysisUser Profitability Free Users Paid Users TotalFreemium Revenue $ - $ 5.00 $ 2.08 Advertising Profitability Page Views 3 3 Ad Rev/1000 page views (CPM) 3 3

Advertising Revenue $ 0.01 $ 0.01 $ 0.01 Total Revenue $ 0.01 $ 5.01 $ 2.09 Service Cost $ 0.35 $ 0.35 $ 0.35

Gross Profit $ (0.22) $ 9.78 $ 3.95 Business Profitability

Subscription Revenue $ - $ 39,927,410 $ 39,927,410 Advertising Revenue $ 100,617 $ 71,869 $ 172,486

Total Revenue $ 100,617 $ 39,999,279 $ 40,099,896

Service Costs $ 3,912,885 $ 2,794,918 $ 6,707,804

Gross Profit $ (3,812,268) $ 37,204,360 $ 33,392,091

Operating Expenses $ 16,827,000 Interest Expense $ 1,300,000

Income Tax Expense $ 11,687,232

Net Profit $ 3,577,859

Appendix

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Freemium Model Assumptions

Assumptions: Source:Retention Rate 70%DeltaDNA Game Analytics and MarketingFree User Churn Rate 8%Flurry Mobile Gaming ResearchPaying User Churn Rate 7%Flurry Mobile Gaming ResearchConversion Rate 5%SUPERDATA Digital Goods ManagementVisitor Referrals per User 0.07DeltaDNA Game Analytics and Marketing

User Base (per month) Free Users 965,010 Retention Rate 70%Free Users Retained per Month 675,507

Net Free User Churn Free User Churn Rate 8%Convert to Paying 5%Churn 13%Visitor Referrals per User 0.07Viral Growth 7%Net churn for Free Users 6%

Free User Base (per year) 11,179,674 Paying Users (per month)

Paying Users per Month 558,984 Net Churn for Paying Users 7%

Paying User Base (per year) 7,985,482 Total User Base (per year) 19,165,156

Appendix

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Profitability Viewership Cost Minimization

Predictive Analytics

Labor Intensive

Freemium

Advertisements

Android

Expansion

Cross Variable Analysis

Strong Weak

Appendix

Low-risk, high reward

Medium risk, medium reward

High-risk, high reward

No significant benefit

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TimelineYear Y1 Y2 Y2

Quarter Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Freemium

• Programming

• Integration

• Phase out P2P

Advertisement

• Integration

• 3rd Party Data Sales

Android

• Android Conversion

Expansion

• Moving

• Use of Facilities

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Forecast ModelRevenue Growth and Profit Expansion

FY12 FY13 FY14 FY15E

-19.49%

-13.94%

-9.95%

0.57%

FY12 FY13 FY14 FY15E $-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$8,954

$12,569

$19,467

$28,549

40100

Revenue (in $000s)

P2P Freemium

Profit Margin 12.53%

Appendix

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Appendix

Product Life Cycle• Ultimate Juggle is in the Top 10 games of

the application market• Historically, such apps have remained

popular for longer periods of time through the release of new versions, updates, and features • Angry Birds came out in 2009 and is still in the

top 20 gaming apps

• Phase 2 would include looking further into additional development for the next suite of game offerings, as development is at the core of your strategy

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Increasing Market Share1. App development

2. Consistent Releases

3. Over arching “themes”

4. Freemium that keeps people playing

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User Growth

Ultimate Juggle Ultimate Juggle Plus Ultimate Juggle Warrior Ultimate Juggle Avenger0

5000

10000

15000

20000

25000

7240

1805

8472

24191805

13121

4123

2419

22635

5643

1210

3889

FY2012 FY2013 FY2014 FY2015E

Dow

nloa

ds p

er D

ay (t

hous

ands

)