💡 This note shows some Free Fire user metrics disclosed in Sea’s filings and earnings calls. Combined with financial data in Free Fire – Preparation Revenue Estimation, one monetization metric, average adjusted revenue per daily active user, is also calculated. I fill the note with my murmur.
Since 2018, Sea has disclosed various Free Fire user metrics to help public investors gauge the traction of Free Fire. The disclosure is not very consistent as some metrics were disclosed at milestones only and some were missed (wonder why s-s analysts didn’t ask for peak 2Q19 and 3Q19 DAU numbers. Maybe they rely more on timely data from third party analytics. The reason why numbers were not disclosed in those two quarters is that Free Fire might experience drawdown in peak DAU).
The company doesn’t disclose the number of cumulative downloads which is fine for me. Number of cumulative downloads is noisy and only goes up (vanity metric) while it’s useful to gauge initial performance at launch or on-going game operation / product iteration. Since this metric is top of the funnel, if a new game flops on this metric, it would take lots of efforts to turnaround. We can find the metric used in a time-aligned comparison among games having similar genre, leveraging the same IP or even being under the same developer, publisher or IP stakeholder (basically, any cumulative metrics can be analyzed this way). For example, few days later, the first month performance of Pokemon Unite might be compared to other MOBA, other mobile games from Timi (developer), Tencent (publisher), The Pokemon Company (IP holder) or even Nintendo (IP stakeholder).
Once the game is downloaded and installed on the device, users need to open the game, register and start playing (activation). The game engages user in different ways (engagement) in addition to pure gameplay after an user is activated and before she/he is churned (retention).
Depending on the nature of the product, metrics for user base estimation are different. A marketplace might choose MAU (Monthly Active User), a productivity tool might choose WAU (Weekly Active User), and a messaging app or a mobile game might choose DAU (Daily Active User).
Sometimes user base in a shorter timeframe divided by user base in a longer timeframe such as DAU/MAU can be used a proxy for engagement. If MAU is very close to total active user base, then the ratio means that how many active user uses the product everyday.
Every company has their own way to calculate MAU/WAU/DAU but these metrics generally have average in their calculation because the timeframe of interest for the specific metric is generally longer than unit timeframe in the metric. We might be interested in a DAU on a specific day but it’s more likely we look for DAU of last month or last week. For example, the number series of active user for last seven days looks like: [25, 16 , 13, 20, 13 ,3 ,1]. DAU for last seven days is 13 (average of the number series) and the peak DAU is 25 (max of the number series). The difference between average and max of the number series is significant because the pattern in number series indicates the product might have specific behavior. The number series might come from an office productivity tool so it’s more often used on weekdays rather than weekend. One way to avoid this pattern is to use metrics with longer timeframe. The WAU for this product in this seven days might be 27 (the reason why it might be larger than peak DAU is we’re counting the total unique user during the week). There two observation from the exercise above: 1) peak DAU is generally larger than DAU; 2) the difference between two might be significant especially when there’s an event that drives product usage on specific day. Peak DAU looks better but it’s more aggressive and might be misleading. Maintaining a growing peak DAU is difficult than maintaining a growing DAU even though the overall user base is expanding and the engagement is increasing because peak DAU might be event-driven. What would you do if you find your peak DAU doesn’t grow but you know the underlying is still healthy. Probably you stop disclosing and wait for the overall user base catching up. Sea took a break for two quarters from 2Q19 to 3Q19. This is not a problem for investors as long as they can get third party data.
Sometimes, once the lifetime number of downloads/installed/registered users have reached certain level, it will become more difficult to interpret due to the nature of app user lifecycle (acquisition→activation→churn→reactivation if any→… how do you define those being churned and how do you measure them if you get them reactivated?), on-going update/iteration of software and on-going game operation. The metrics derived from these cumulative numbers get noisier and noisier as time goes by.
Free Fire User Metrics
- Free Fire reached 100M MAU and 40M peak DAU in 4Q18. It had 80M peak DAU in 1Q20. If the engagement relationship hasn’t changed a lot, Free Fire might have ~200M MAU in 1Q20 (probably not reached yet because the company might have reported this milestone if it had reached)
- The company has been reporting peak DAU since 2Q18 (from call transcript 3Q18). The reporting was suspended in 2Q19 and 3Q19 but resumed in 4Q19.
Combining Adjusted Revenue and User Metric
The company generally doesn’t disclose number of paying users for specific game.
In April 2020:
- Free Fire had record high monthly paying user which more than doubled yoy (since the peak DAU only grew 60% yoy, the conversion probably improved)
- In India, monthly paying users/monthly active user > 10%
We use peak DAU to calculate a monetization metric, Average Adjusted Revenue per Peak DAU (AARpPKDAU).
Fire Fire Adj. Rev. has been driven by expanding user base, improving conversion (paying ratio), and increasing monetization. As long as you build, grow and sustain a large user base, you always can find/try various monetization methods. While Free Fire focuses more on the monetization now, keep growing and sustaining a healthy user base is one of the keys to turning a game into a platform (key words: engagement, community, ecosystem…). Sea’s current goal for Free Fire is to make it a social platform so the company might try more monetization initiatives to bring in new revenue streams.
The monetization metric – AARpPKDAU – is not accurate but still provides a snapshot on monetization trajectory. The metric is driven various factors so a jump might not be good and a decline might not be bad. For example, a jump in Average Revenue per User (ARpU) might come from more aggressive initiatives which might sacrifice overall user experience and churn light users who might be converted into a paying users. A decline in ARpU might be due to new market penetration that expands the user base but hasn’t brought in revenue yet. If there’s a jump in user base proxy along with a decline a ARpU, I tend to interpret it more positively.
💡 This note tries to understand the traction of Free Fire. Generally, I would start with metrics which are more top of funnel such as downloads, number of active users, conversion, number of paying users or even engagement metrics. However, I was triggered by a Sensor Tower blog post the other day which mentioned Garena Free Fire revenue in 1H2020. I was confused by my back of the envelop growth rate calculation because I only had some rough ideas on how well Garena Free Fire performed financially before putting together this post. The confusion probably came from that there’re few financial metrics available in the market – revenue from third party analytics, Non-GAAP adjusted revenue from Sea’s Digital Entertainment, and GAAP revenue from Sea’s Digital Entertainment. It seems I encountered some difficulties when collecting those data to understand Garena Fire Fire financial performance. This post shows the traction of price-driving metric – adjusted revenue and digs out the history of a parameter which is key to determine Garena Free Fire adjusted revenue but not being disclosed anymore.
Announcement from Sea Limited
As of the end of October 2019, Free Fire had recorded a total cumulative adjusted revenue of over US$1 billion since launch.6-K Reports Third Quarter 2019 Results
Estimation: Free Fire’s Contribution to Adjusted Revenue in Sea’s Digital Entertainment (DE)
- Launched on Dec 4, 2017
- Accumulated $1B adjusted revenue (adj. rev.) by Oct 31, 2019 → roughly 23 months since launch or average $43.5M per month
1st Attempt to Estimate Garena Free Fire Adjusted Revenue Contribution
- As of Oct 31, 2018, Garena Free Fire’s lifetime adj rev. contribution to Sea’s Digital Entertainment since its launch was estimated to be ~60% (see estimation in Window Matching and Accumulated Adj. Rev. in the Window toggle lists below).
- Window Matching (Notion)
- Accumulated Adj. Rev. in the Window (Notion)
Filing Walk-Through to Gather Additional Info
- Started monetization in January 2018
- Ramped up monetization in June 2018
- Garena Free Fire adj. rev. contribution as % of Sea’s Digital Entertainment disclosed in the earnings call (see Filings & Transcripts toggle list below)
- 13% in June 2018
- 22% in 3Q18
- 44.5% in 4Q18
- 50%-60% in 1Q19
- Stop disclosing in earnings call since 2Q19
- The accumulated Garena Free Fire adj. rev during 1Q18-3Q19 + 1/3 of 4Q19 above was $1,024M which is close to the announced $1B lifetime adjusted revenue as of Oct 31, 2019.
- Approximately, Garena Free Fire contributed ~48.6% of Sea’s Digital Entertainment adjusted revenue during 1Q18-Oct. 2019.
- Garena Free Fire’s 65% adj. rev. contribution in 4Q19 looks reasonable and can be bridged to current 70% estimated by s-s analyst.
Third Party Analytics – Senor Tower
Cross Check with Official Data
- Numbers from third party analytics are more timely and detailed but we need to check the relationship between the reported numbers from analytics firms and numbers from the company. Sea discloses two top-line metrics: 1) GAAP revenue 2) Non-GAAP adjusted revenue which takes the changes in deferred revenue in the period into account. Sea believes that the Non-GAAP measure can better represent the performance of the business.
- If there’s wide difference and inconsistent between numbers from analytics firm and the company, the third party number might be less informative while it’s still an estimate to gauge the underlying performance. The difference and inconsistency might come from measures adopted, coverage difference, my mistake in merging/inferencing data from different sources. For example, I calculate Garena Free Fire 2Q19 revenue in Senor Tower by deducting cumulative revenue 1Q18-2Q19 by cumulative revenue 1Q18-1Q19.
- Senor Tower has reported Garena Free Fire revenue several times.
- From the charts below, it seems the discrepancy between Senor Tower and Garena Free Fire adj. rev. expands in tandem with discrepancy between GAAP and Non-GAAP numbers.
- Sensor Tower’s 1H20 number implies a 11.5% yoy growth which is difficult to reconcile with Garena Free Fire adjusted revenue trajectory as the gap between GAAP/Non-GAAP expands when game with large user base stated to ramp up monetization.
- A quick guesstimate on Garena Free Fire adj. rev in 2Q20 by observing the pattern is $375M (+$30M from 1Q20 which is based the assumption of 67.5% contribution) or around 41% yoy growth which implies yoy growth around 50% in first half of 2020. I believe adj revenue has more impact on price. While third part analytic is more timely, it’s too difficult for me to interpret.
Stick with Price-driving Metric, Focus on Long Term, and Believe Platform Brings in Optionality
So for this game, we’ll not look at any quarter-on-quarter or month-to-month or even year-on-year short-term performance, but we are really looking to build it into a long-term IP franchise.3Q19 Earnings Call
💡 I don’t have the luxury to get access to premium analytics so I start with some free information available online. This note follows Free Fire – Preparation 01 to collect Garena Free Fire public data and some initial thoughts.
Recent Data – All from Senor Tower
First Half 2020 Top Games
- In the first half of 2020, Garena Free Fire took No.1 and No.2 in Google Play Downloads and Overall Downloads, respectively.
- In terms of grossing, Garena Fire Fire took No.10 in Google Play Revenue but didn’t enter into top 10 either in App Store or Overall. This is due to lower ARpPU in markets that are dominated or newly penetrated by Garena Free Fire.
- Acquiring large user base is just the beginning. It takes some efforts and time to increase the monetization through on-going operation to keep the engagement high (eventually to increase paying user ratio and average spending among paying users…)… Another way to boost the ARpPU is to penetrate high ARpPU gamer segment in existing markets or markets with higher ARpPU. Increasing or jump in downloads in App Store or Developed Markets might be early sign of improving ARpPU which might lead to elevated grossing going forward.
- According to Senor Tower, Garena Free Fire generated $300M in the first half of 2020.
Top Mobile Games Worldwide by Monthly Downloads and Revenue
- The Worldwide Downloads of Garena Free Fire has been trending up since March 2020 in both Google Play and Overall Ranking. It was top 3 in both Google Play and Overall Ranking May 2020.
- As discussed above, the leading position in downloads still had some leakage in revenue conversion. It seems Garena Free Fire struggled to maintain its top grossing mobile game position in Google Play in the first five months of 2020. Not surprisingly, it didn’t show up in App Store or Overall ranking during this period of time.
- Revenue ranking here is just relative number. It’s likely that Garena Free Fire’s absolute revenue numbers during this period of time were healthy or even impressive.
- Next: cross check with Sea’s Digital Entertainment numbers and update June number from Sensor Tower few days later.
Sources and monthly ranking can be found in Notion version.