Yuga Labs’ pivot, indie game surge, Snap’s murky future – Games Growth with Upptic

In this episode, meet Unity’s new CEO, understand what the layoffs at Yuga Labs mean, how small indie developers are continuing to see outsized success, and whether Snap’s earnings and revenue trends are really all that. We dive into the growth potential of Unity, the limitations of web3 IP in attracting mainstream audiences, the explosive rise of small game development teams, and the performance of Snap in different markets.

Takeaways

• Unity has appointed a new CEO, Matthew Bromberg, as the company undergoes a company-wide reset.
• Yuga Labs, known for its NFT collections, is pivoting away from gaming and back to metaverse.
• The value of Web3 native IP in gaming is questionable, as it may not attract mainstream audiences.
• Small indie game developers are achieving significant success with the aid of new tools and strategies.
• Snap reported growth in revenue, ARPU, and DAU, with significant growth coming from outside North America.
• Snap’s performance as an advertising platform may be declining, as it seems to charge advertisers more and give less.

Chapters

00:00 – Introduction
01:02 – Meet Unity’s new CEO – will he turn things around?
03:26 – Yuga Labs’ pivot hints at web3 IP weakness
10:34 – Small game teams continue to win big in 2024
15:28 – Snap’s 2024 Q1 report hints at murky future
20:12 – Closing and sponsor message

Meet Unity’s new CEO – will he turn things around?

Unity Technologies has announced the appointment of Matthew Bromberg as its new CEO. Bromberg, who previously held leadership roles as COO at Zynga and SVP of Strategy & Operations at Electronic Arts (EA), steps into the position following the departure of John Riccitiello. Riccitiello, also a former EA executive, stepped down in October 2023 amidst controversy over the introduction of a new runtime fee, a decision that faced significant backlash from the developer community.

This leadership change comes at a pivotal time for Unity, as the company recently implemented a substantial workforce reduction, laying off 25 percent of its staff. This move is part of a broader “company reset” aimed at revitalizing revenue growth and stabilizing the company’s financial footing.

Unity’s forthcoming earnings report next week is highly anticipated, as it will provide the first insights into the company’s financial health following these significant organizational changes. This report is expected to shed light on the initial impacts of the new strategic direction under Bromberg’s leadership. The Unity community and investors are keenly awaiting this update, hopeful for positive news that may signal a strong recovery and a clear path forward for the company.

Yuga Labs’ pivot hints at web3 IP weakness

The video game industry is witnessing a transformative era marked by the rise of indie developers achieving monumental success, often with minimal traditional marketing. This trend is highlighted by several breakout hits that have not only captivated gamers but have also disrupted traditional models of game development and marketing.

Manor Lords, a city-building game developed by a single main developer, saw an astonishing one million Steam sales in just one day, with a peak of 173,000 concurrent players – the highest ever in its genre. Similarly, Balatro, another game crafted by a solo developer, reached one million Steam sales in under a month and had 38,000 concurrent players at its peak.

On the other end of the spectrum, Helldivers 2, developed by a 100-person team, has exceeded eight million Steam sales, with a record 460,000 concurrent Steam users and reportedly 800,000 across all platforms. Palworld, which started with a small team that has supposedly expanded to about 40 developers, sold eight million copies within six days of launch – and a staggering 25 million units by late February 2024 across Steam and Xbox.

These games share a common thread of achieving viral success without heavy reliance on traditional marketing avenues. This phenomenon can partly be attributed to new tools and technologies, including AI, which empower small teams and individual developers to create and market games more effectively. These developers are also learning to “hack” the algorithms on platforms like Steam – what we’re really seeing is a new kind of app store optimization (ASO) for PC and console.

However, as more people learn how to implement these PC/console ASO strategies, there’s also a risk of lower-quality games climbing the charts. Platforms like Steam would do well to follow in the steps of app stores like Apple and consider much more than downloads when curating content.

Still, this shift in the gaming landscape is a clear indication of how democratized tools and platforms are reshaping what’s possible in the industry, paving the way for more innovation.

Snap’s 2024 Q1 report hints at murky future

Snap Inc. has recently posted its financial results for Q1 2024, revealing several positive trends amidst ongoing challenges. The company reported a 21% year-over-year increase in revenue, climbing to $1.19 billion from $989 million the previous year. Daily Active Users (DAU) saw a robust 10% growth, reaching 422 million compared to 383 million last year. Additionally, Average Revenue Per User (ARPU) grew to $2.83, up from $2.58, reflecting a promising increase in revenue generation efficiency.

Notably, Snap reported an adjusted EPS of $0.03, surpassing analyst expectations which had anticipated a loss of $0.26 per share. This figure, however, comes with a caveat as it involves several exclusions such as stock-based compensation and depreciation, leading some critics, echoing Charley Munger, to label it as “bullshit earnings.”

The operating loss has shown improvement as well, reducing from $365 million last year to $333 million this year. This decrease suggests a modest enhancement in operational efficiency despite the company’s unstable footing.

A significant aspect of Snap’s current strategy is its expansion beyond traditional markets. The growth in ARPU was up 13% YoY for the rest of the world. While growth in North America was up 17% YoY, there was a notable drop from Q4. The fact that growth of SnapChat+ subscriptions has risen from 3 million to 9 million YoY highlights an effective incremental revenue model that differentiates Snap from other social networks, capitalizing on subscription-based monetization.

Despite these positive metrics, it’s essential to temper expectations. The growth this quarter, while solid, isn’t as spectacular as some might suggest. Most of Snap’s growth is occurring outside the United States, indicating a strategic pivot to less competitive markets. And much like Meta, Snap seems to be charging more for about the same results when it comes to advertising and marketing.

Overall, this quarter marks a period of meaningful growth for Snap. The company shows potential with its increased subscriber base and ARPU, but it remains to be seen how these trends will stabilize in the face of broader market challenges and competitive pressures.