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In an increasingly fractured global climate, perhaps the biggest irony in recent memory was that the otherwise horrible COVID-19 pandemic sparked an international resurgence for video games. From the U.S. to Latin America to the Asia-Pacific market, Statista.com reported double-digit gaming growth in all regions. It turns out that humans, irrespective of the color of their passports, are essentially the same everywhere.
But as various communities gradually acclimate to the COVID-19 crisis, the geopolitically sensitive initial public offering (IPO) of Nexters Global raises a question: can the mobile game development firm successfully navigate rising tensions brewing in the world today?
When Is the Nexters IPO Date?
Aligning with contemporary IPO trends for smaller enterprises that prefer avoiding the onerous requirements of a traditional market debut, Nexters Global elected to enter the public arena via a merger with a special purpose acquisition company (SPAC). Also called blank-check firms or shell companies, SPACs have no underlying operations. Instead, a SPAC sponsor launches its own IPO in the hopes of identifying a merger target.
Typically, securities regulations allow SPACs approximately 2 years to find a promising enterprise. Once discovered and following regulatory and shareholder approval, the blank-check firm merges with the target, effectively assuming its corporate identity. On the other end of the table, the formerly private company with the actual business goes public by default.
You often hear the term reverse merger when journalists describe the business combination. That’s because SPACs represent a backdoor method to an IPO, sidestepping the long and expensive road for a traditional offering. In this case, Nexters — which owns the popular mobile game Hero Wars — agreed to combine with shell company Kismet Acquisition One Corp on February 1, 2021.
According to a Reuters report, this SPAC deal valued Nexters at $1.9 billion, comparing favorably to sector rival Glu Mobile, which commanded a $2.1 billion valuation at the time when gaming giant Electronic Arts (NASDAQ: EA) bought out the company.
Recently, on August 27 following shareholder approval of the business combination, Nexters made its debut on the IPO calendar under its own brand name. Shares now trade under the ticker symbol GDEV on the Nasdaq exchange.
So far, so good, except for one conspicuous factor — both the SPAC and the target hail from Russia. Indeed, Kismet stated that the deal is the “first cooperation of its kind, involving a company from Russia and a Russian SPAC to list shares” in the U.S., per another Reuters report.
Ordinarily, such immutable characteristics of an IPO wouldn’t raise an eyebrow. However, relations between the U.S. and Russia are strained and any escalating events could easily inflame tensions, possibly clouding the future of GDEV stock.
Nexters Global Financial History
If you felt that video game consumption increased dramatically during the COVID-fueled lockdowns, your intuition needs no recalibration. According to a USA Today article, 2/3 of Americans or nominally 227 million play video games. During the worst of the crisis, digital entertainment provided stress relief. That’s a massive consumer base that Nexters can easily target.
It gets better. According to a February 2021 survey by market research firm Ipsos, in conjunction with the Entertainment Software Association, “More than half of players (55%) said they played more games during the pandemic, and most players (90%) said they will continue playing after the country opens up.” Thus, the bullish narrative for GDEV stock doesn’t just center on prior developments but on future events the target consumer base is all but guaranteed to underwrite.
Not surprisingly, then, Nexters has been posting impressive financial performance metrics as of late. From a separate Reuters report, Nexters estimated that its revenue for the 1st quarter of 2021 increased by 48% on a year-over-year (YOY) basis. Additionally, management forecasted that bookings — the net amount of products and services sold digitally or sold physically in the period, per Statista’s definition — rose 15% to $113 million.
At the time, management estimated 2021 bookings to hit around $610 million, up 38% from the prior year’s tally.
Later, Nexters reported $154 million in bookings for Q2 2021, a massive 40% improvement over Q2 2020 results. The company’s leadership team cited “successful marketing initiatives” for contributing to the robust financial and operating performances. Just as significantly, the number of paying customers increased 43% YOY to 400,000 players.
While deeply impressive, prospective buyers of GDEV stock should note that the barrier to entry for mobile games is relatively low. This dynamic unfortunately opens Nexters to potentially serious competition, which may lead to market commoditization.
In the late spring of 2019, eMarketer revealed that for the 1st time ever, U.S. “consumers will spend more time using their mobile devices than watching TV, with smartphone use dominating that time spent.” Further, with the COVID-19 crisis temporarily putting an end to live events, there was even less reason for people to turn on the tube.
Naturally, this situation represents both the potential and the pitfall of GDEV stock. As a mobile game developer — especially one with a compelling title in Hero Wars — Nexters enjoys a large and expanding addressable market. At the same time, investments in global gaming enterprises have been booming well before the pandemic, imposing competitive pressures.
But with the Russian gaming firm, investors can’t ignore its origin story. Currently, tense U.S.-China relations could set off a scenario where entities like the New York Stock Exchange, Nasdaq and even the over-the-counter market eject hundreds of publicly traded Chinese companies, per an Atlantic Council analysis.
While the China circumstance is distinct from U.S.-Russian diplomatic relations, it wouldn’t be out of the norm for similar draconian actions to impact Russian stocks. For instance, back in 2014 when Moscow’s takeover of Crimea sparked international outcry and calls for sanctions, Russian regulators requested their domestic companies to voluntarily delist from foreign (particularly western) exchanges, citing “economic security” concerns.
While no one hopes for a reescalation of such tensions, just the fact that precedent exists should give investors pause.
How to Buy Nexters Global IPO (GDEV) Stock
As a SPAC-based IPO, Nexters sidestepped the burdensome vetting process it would have faced had it gone public via the traditional route. But that also brings up a question of incentives and fiduciary duty. In other words, is the SPAC vehicle really a benefactor of the average investor?
In fairness, SPACs do bring opportunities to the table that regular folks would otherwise never see. But on the same token, the lessened regulatory oversight may instill a false sense of confidence to public investors, especially those who are not yet completely versed on how to buy stocks.
Certainly, before you consider the…
Read More:Is Nexters Global IPO (GDEV) Stock a Good Buy? • Benzinga