Free Fire – Preparation Revenue Estimation

💡 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.

This post has a detailed Notion version where collects most of the material in this post. Series posts: Free Fire

Official Numbers


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)

Basic Info

  • 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

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.
20-F FY 2019 ended 12/31/19
20-F FY 2019 ended 12/31/19

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.
  • 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

Free Fire – Preparation 02

💡 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.

This post has a Notion version. Previous post: Free Fire – Preparation 01

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.
Source: Global App Revenue Reached $50 Billion in the First Half of 2020
Source: Global App Revenue Reached $50 Billion 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.
Source: Top Mobile Games Worldwide by Downloads; Chart: @James Yeh
Source: Top Mobile Games Worldwide by Downloads; Chart: @James Yeh
Source: Top Mobile Games Worldwide by Downloads; Chart: @James Yeh

Sources and monthly ranking can be found in Notion version.

Free Fire – Preparation 01

💡 I analyze Free Fire not from a product perspective but from a platform business perspective. The key differences between two perspectives are the length of lifespan, the shape of life cycle in terms of revenue, and the optionality while both have some similar business model attributes such as live game (on-going operation, Game-as-a-Service) and monetization methods applied. I don’t have the luxury to get access to premium analytics so I start with some free information available online.

This post has a Notion version and is followed by Free Fire – Preparation 02

Guess from Historical Data – All from Senor Tower


2019 Top Games

  • Garena Free Fire was No.2 game in 2019 by downloads
  • The smaller share of App Store in Garena Free Fire compared to those of PUBG Mobile and Call of Duty indicates the market segment difference (customer segment, device, spec, demographic)
  • Device spec requirement for the game needs to fit the market. And the monetization methods need to fit as well.
Source: Q4 2019 Store Intelligence Data Digest

2019 Q4 Data

  • Performed well in 2019 Q4 by downloads
  • Very low App Store share in worldwide download
  • Not in the worldwide App Store chart but ranked No. 3 in Google Play
  • Not even in the US Google Play which indicates major markets are outside of the U.S.
Source: Q4 2019 Store Intelligence Data Digest
Source: Q4 2019 Store Intelligence Data Digest
Source: Q4 2019 Store Intelligence Data Digest
Source: Q4 2019 Store Intelligence Data Digest

The State of Mobile Battle Royale as of Q2 2019

  • Garena Free Fire was the only Battle Royale app which quarterly downloads trended upward from Q1 2018 and Q2 2019. This might indicate that 1) Garena Free Fire had not reached the inflection point of S-curve yet and/or 2) Garena’s TAM was expanding by entering into new market or further penetrating existing markets.
  • Among top 10 countries by downloads of Battle Royale, Garena Free Fire has significant or meaningful market share (by downloads) in emerging markets whose characteristics are larger population but lower ARpPU. Markets include India, Brazil, Indonesia, Vietnam, Thailand, Mexico, Turkey. Note that Southeast Asia is Garena’s core market. In addition, Garena Free Fire also had some market share in the U.S.
  • In terms of revenue traction as of Q2 2019, it showed that 1) PUBG Mobile exploded in quarterly revenue reflecting monetization in China; 2) stabilization of Knifes Out and Fortnite 3) phasing out of Rules of Survival; 4) healthy upward trend in Garena Free Fire’s quarterly revenue which might be reflecting hypothesis in the first bullet point. Garen Free Fire grossed more than Knives Out and Fortnite in Q2 2019 driven by more than $55 million gross revenue from Brazil.
  • The cumulative world revenue from 1Q 2018 to 2Q 2019 indicates the much higher ARpPU of iOS devices users which might be driven by 1) stronger purchasing power; 2) better conversion; 3) better retention (for whatever reason). Based on the device distribution in downloads, revenue contribution per download of iOS devices was much higher than that of Android devices.
  • Among top countries by battle royale revenue during 1Q 2018 to 2Q 2019, Knives Out dominated Japan; Fortnite dominated U.S. while PUBG Mobile having meaningful share; PUBG Mobile and Knives Out shared the China App Store market for the category. Garena Free Fire dominated market like Brazil, Thailand, Mexico, and Indonesia. Garena Free Fire also had sizable share in Malaysia. (what’s KSF for Garena to grabbed such shares in some LATAM markets?)
Source: The State of Mobile Battle Royale Games in Q2 2019
Source: The State of Mobile Battle Royale Games in Q2 2019
Source: The State of Mobile Battle Royale Games in Q2 2019
Source: The State of Mobile Battle Royale Games in Q2 2019
Source: The State of Mobile Battle Royale Games in Q2 2019

Garena Free Fire Quarterly Gross Revenue from 4Q 2017 to 1Q 2019

  • Combined with data above, the estimated Garena Free Fire revenue in 2Q 2019 was around $179M ($387M – ($2M+$11M+$29M+$76M+$90M)).
  • Brazil accounted for ~31% or ~$27.9M of $90M in 1Q 2019. Brazil revenue share in 4Q 2018 was estimated ~44% or ~$33.4M.
  • Thailand contributed 11% or ~$9.9M of the total in 1Q 2019.
  • United Stated contributed ~9.4% or ~$8.5M of the total in 1Q 2019. Its share in 4Q 2018 was about 4%.
  • Brazil’s new installs were 14.6M in 1Q 2019 accounting for 20% of 73M downloads.
  • India’s new installs were 11.7M in 1Q 2019 or 16% of total downloads.
  • Indonesia’s new installs were 10.2M in 2019 or 14% total downloads.
  • U.S. new installs were around 1.1M in 2019 or 1.5% total downloads.
  • Overall, new installs had 81% YoY and 23% QoQ in 1Q 2019.
Source: Garena Free Fire Posts Record Quarter with $90 Million in Spending, 73 Million New Players

Sea’s Garena Snapshot

Some Sea’s Digital Entertainment charts for housekeeping purpose.

User Base

Monetization

Margin Profile

Talking Points in DE

  • Fully self-developed game, Free Fire, launched on iOS App Store & Google Play Store on December 4, 2017. Free Fire is a battle royale type of mobile game developed in-house by Garena.
    • Daily active user (DAU) from over 130 markets worldwide
      • 1Q20: 80m peak DAU
      • 4Q19: 60m peak DAU
      • 3Q19: m peak DAU (cumulative adjusted revenue reached US$1 Billion)
      • 2Q19: m peak DAU
      • 1Q19: 50m peak DAU (450m global registered users)
      • 4Q18: 40m peak DAU (350m global registered users); (self-dev: 44.5% DE adj rev )
      • 3Q18: 27m peak DAU (200m global registered users)
      • 2Q18: 16m DAU (in June, self-developed game accounted for 13% DE adj rev)
      • 1Q18: 13m DAU
      • 4Q17: 6m DAU
  • Macro Trend
    • Smartphone penetration in the region (4Q17)
  • Strategic Update
    • 2Q18
      • moving from PC-only to mobile-first
      • moving from pure game publishing to both game publishing and development
      • expanding from a regional footprint to a global presence (core -> )
    • 3Q18
      • partnership with Tencent (granted a right of first of refusal to publish its mobile and PC games)

Business

  • Game publishing:
    • 1st party (Free Fire)
    • 3rd party – Tencent under right of first refusal agreement such as Tencent’s Speed Drifters and Activision & Tencent Games’ Call of Duty: Mobile
    • 3rd party – Others such as PUBG Corporation’s PUBG LITE
  • Game development: studio in Shanghai (200+ developers as of 4Q18)