Games co TabTale exceeds 1.2 billion downloads

TabTale founders Photo: Tamar Matsafi

With 2016 revenue of $65 million, the Israeli children's games company has refused tempting offers, preferring long-term growth.

Founded in 2010, Israeli childrens' games developer TabTale is now one of the leading children's games companies in the Apple and Google apps stores. "Globes" first mentioned TabTale in the summer of 2013, when the company raised $12 million in its most recent financing round. A lot has happened to TabTale since then; it has gone from 200 million downloads at that time to 1.2 billion today, a point that brings to mind the Outfit7 acquisition.

TabTale founders CEO Sagi Schliesser, Oran Kushnir, and CTO Nir Bejerano may be in no hurry to sell their company for a price based on the $1 billion Outfit7 deal, but some in the tech industry have already done so, using mainly the number of downloads, the main parameter for measuring the success of companies of this type. "Outfit7 is our big sister," says Schliesser. "When we checked who we wanted to outperform in the apps stores and/or to learn from them, it was Outfit7. We learned a lot from them."

"Globes": The ratio of TabTale's downloads to those of Outfit7 is about one to four or one to five. Does that mean that TabTale is worth $200 million on paper?

Schliesser: "We're not laying claim to any particular value, but parameters like the number of downloads and the annual download rate are what determine the value of companies of this type. We average 40 million active users a month (about 7% of what Outfit7 has, T.T.), which amounts to about 4% of our total downloads. That's a low conversion rate, but it's acceptable in the industry as a whole."

A single-digit percentage of total downloads being active users may be an acceptable figure in the industry of TabTale, Outfit7, and the like, but Schliesser claims that the right parameter for measuring an app's success is the total number of downloads and the rating in the apps stores derived from it.

Are you for sale?

"No. We have aggressive growth plans extending as far as 2020. We want to position ourselves as one of the world's leading games companies. We want to be in the top five, not just the top 10. For example, we'll soon launch a line of super-casual games, for which our target is 100 million downloads by the end of 2017 and 250 million by the end of 2018."

TabTale's growth is mostly organic, but it is not neglecting acquisitions as a growth engine. In the summer of 2015, it made an attempt at what would have been its largest-ever acquisition - Tocca Boca, for tens of millions of dollars - but lost out to another bidder. In early 2015, it acquired Serbian company Level Bit for a few million dollars, and in April 2015, it acquired US company Sunstorm Games for $6 million. A year before that, it acquired Chinese company Coco Play for $1 million, and it acquired Israeli company Kids Games Club in 2013, but did not disclose the acquisition price. "Every year for us starts with 40 potential acquisitions. We considered six companies last year, but acquired none of them in the end. We're focusing on companies that have lost momentum."

What about you? Have you had an offer to acquire you?

"Yes, but we rejected it. The price has to reflect not just where the company is right now, but where it's going. We'll be a very significant company in the global games industry, and any offer has to reflect this potential."

But there is a lot of Asian money available right now, mainly Chinese, eager to buy companies like TabTale. Aren't you afraid of missing the boat?

"It's hard for me to answer that. We're learning from the mistakes we made, but we never regret them."

In order to understand how TabTale achieved what it has achieved, it is necessary to go back to 2010, when Apple presented the world with the iPad, its best-selling tablet. With his impressive high-tech resume (CTO at Sapiens International NV (Nasdaq: SPNS; TASE: SPNS) and IDIT, HP Software VP product management, and ECS founder), Schliesser joined forces with Kushnir (Radware Ltd. (Nasdaq:RDWR) chairman and former senior executive and CMi founder) and Berejano (former architecture manager at BigBand Networks, which failed). The trio developed a platform for generating digital content for children on a tablet like iPad. "We quickly realized that what really interests us is creating the content, not just the platform on which it works. We started with interactive books that include actions beyond reading, and we published about 50 of them not covered by copyrights, such as Goldilocks and the Three Bears. After two years, we entered the world of casual children's games, such as games that teach how to cook and bake, and we have registered 1.2 billion downloads - 1% of all the apps downloaded in Apple and Google stores."

Every TabTale game is an app in its own right, and the company has almost 500 apps. Schliesser claims that it is difficult to compare the company's download performance to those of similar companies in the same category, and that the important rating is therefore the general one. According to App Annie, a research company that rates all apps, TabTale placed 10th in the world last January in the category of games for Apple and Google phones according to the total number of downloads for its games, and eight in the world when only games for Google phones are counted.

TabTale's competitors in this category, some of them also private companies and some of them public, include Outfit7 (sold for $1 billion) and King (the developer of Candy Crush, which was sold a year ago for $5.9 billion).

What is special about TabTale games?

"They are simply enjoyable games. Once, we thought that parents determined which games their children would play. Then we discovered that after age 5, it's the child who decides, except maybe for Asian countries like China. We focus on children age 2-13, and now we're coming out with a line of games for children age 13+. Our games don't force the child to enter an app every day and play on it for hours, like Cash Royal and the like. There's no accumulation of points, so no points are lost if you leave the game. These games are designed to give a child a few moments of pleasure."

Isn't that a disadvantage? Don't you want users to be more addicted to the game?

"Addiction is a problem for children age 2-13. No parent wants to spend thousands of dollars on each game the child plays. With us, the cost of the game - how much it costs to open each game - is $4.99-9.99. We have almost 500 games, and the average TabTale user has four apps, meaning that he plays four of our games a month on the average. We have 30-50 million new downloads a month, three quarters of them by existing users and one quarter of them by new users. A user plays an average of 2-4 sessions a week, 25 minutes a session."

The company set a new record for its downloads last January - 43 million. It was rated 15th in the world in the iPad games category and 14th in the Google app store (in the same category). Geographically, the company's main market is the US (half of its users), followed by Japan, South Korea, and Saudi Arabia and several other Arab countries. "I don't know what the explanation is," Schliesser says.

According to IVC (Schliesser neither denies nor confirms - "that's the direction"), TabTale's revenue totaled $65 million last year, compared with $35 million in 2015 and $2 million in 2012. "We're a company that has achieved big numbers, and we have a few million dollars a month in revenue, in other words, tens of millions of dollars a year. The company has made a profit since 2012, and our profit margins are high," he says.

Children age 2-13 are not an easy audience. They change their preferences all the time.

"Right, and that's why we have almost 500 games. Like every games company, we're in a perpetual search for the next new game."

What are the priorities right now?

"Mainly a creative game, and mainly for girls, like learning how to sew and design clothes."

Is there an educational element in your games? Do they help develop the brain a little?

"A little, because sometimes we simply learn from it about what is happening in the physical world, and design the game accordingly. For example, our studio in China (the result of an acquisition, which now has 50 employees, compared with 10 when the acquisition was made) has developed choreography and dance games, such as learning to be a ballerina, and these games accumulated one million downloads within a week. Still, our games are played while waiting for the bus, in a line for coffee, and even when kids want to relax or take a break for a few minutes from studying for an exam. I, for example, have two daughters, 11 and 15, and the older one sometimes plays several minutes after studying for a test, when she wants to loosen up. Our games are a means of entertainment, like television, and some of them have an educational element."

Kids under 13 do not always have their own smartphone. That means that they play on their parents' phone, or if they have one, they buy games with their parents' credit cards. It sounds rather uncomfortable for the parents.

"Maybe, but that's the situation. The child simply goes to his parents and tells them what game he wants to download, and his parent just makes sure that it's not violent or something like that, and gives him the OK to download it. I know parents who have entire libraries of children's game apps for their smartphones."

You raised $12 million three and a half years ago, and you have not raised any more money since. How do you explain it?

"All of the $12 million we raised is still in the bank. We didn't touch it. We're making a profit. We just now closed our work plan for the coming year, and we'll pay for the entire budget from current activities, without touching the cash in the bank. TabTale is built so that half of the company generates its revenue and the other half is like a startup working on new developments."

Such as?

"I can't disclose much. I'll only say that we're on the verge of a signing with one of the world's biggest toy companies to develop games inspired by some of its biggest brands. This company wants no more than five apps, i.e. games, per brand. We're also in the advanced stages of two deals for developing animation series for children's television, based on characters from our games. Deals like this can be an important source of revenue, but not this year; it will be closer to 2020. In general, we're a virtual toy company, and there's a lot of logic in cooperation between us and companies making physical toys."

What is the growth target for the current year?

"20-30%, fairly slow, because 2017 is an investment year, among other things in the super-casual games line."

Published by Globes [online], Israel Business News - www.globes-online.com - on February 28, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

TabTale founders Photo: Tamar Matsafi
TabTale founders Photo: Tamar Matsafi
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