How does Animoca Brands turn around and make big profits in a bear market?
Crypto games have failed to deliver on their huge market expectations, but now, one of the early pioneers in this field is finding its financial footing in this challenging industry.
The crypto industry is once again experiencing exciting moments. Bitcoin has reached a new high, with a price of $111,814; Coinbase has become the first crypto company to enter the S&P 500 index; and more and more industry companies plan to go public in this suddenly warming crypto market.
In this context, Hong Kong's Web3 company Animoca Brands has also joined the ranks. This privately traded company is involved in NFTs, crypto games, and an investment platform with over 500 companies investing, including the cryptocurrency exchange Kraken and Ethereum development studio ConsenSys.
Animoca was delisted from the Australian Securities Exchange in 2020 due to its ties to the crypto industry, but during the pandemic, its valuation soared from $100 million to $5.9 billion, marking a glorious moment. However, in the crypto winter, the NFT market crash, and the subsequent meme coin craze, the company gradually faded from the public eye. Meanwhile, the GameFi boom failed to attract the broad attention of the estimated $180 billion global gaming market as calculated by Oppenheimer, further complicating the situation.
Despite this, under CEO Yat Siu's leadership, Animoca continues to move steadily forward, paving profitable business strategies for the company. According to unaudited financial data published on the company's website, Animoca achieved a profit of $97 million last year, a 185% increase from 2023.
Today, the company is exploring more business connections with the US market together with numerous global enterprises. This is thanks to the friendly attitude of the Trump administration towards the crypto industry, including plans to possibly go public on well-known exchanges such as NASDAQ or the New York Stock Exchange. "We believe the US will become the largest crypto market globally, so it would be very stupid if we don’t try to enter this market," Siu said in an interview with Unchained. However, he also pointed out that a US listing is just one of many opportunities the company is currently exploring.
What market reaction will Animoca receive? This will depend on whether GameFi and NFTs can re-attract users, and whether investors recognize Animoca as a 'tool provider' in the GameFi field.
Game paused
Although the global gaming industry is largely unaffected by specific tariffs from the Trump administration, it remains highly dependent on the constantly changing macroeconomic environment. "Overall, the industry is performing reasonably well, but it's far from as good as it was during the pandemic," said Martin Yang, a senior analyst at Oppenheimer. "We experienced very strong growth over the past two years, but now the overall annual growth rate might only be 3-6%."
The situation in the mobile gaming market is even more concerning, which is precisely where GameFi predominantly exists. This may seem somewhat counterintuitive to external observers, as the 'freemium' model and relatively low costs of mobile gaming seem more resilient. However, this phenomenon reveals an important detail about the gaming industry and explains why crypto gaming struggles to gain a foothold.
"People used to think, 'Oh, players either don’t pay at all, or they only pay a little bit to play games,' so they believed [the mobile gaming model] could withstand challenging macro environments," said Mike Hickey, a senior analyst at The Benchmark Company, in an interview. "But in fact, since a few years ago, we found that the mobile gaming market is the most vulnerable." He further pointed out that even many major independent mobile game studios, like Zynga, have been acquired or face layoffs.
How do these trends relate to the crypto industry? Data shows that GameFi is in trouble, partly because the user base of GameFi is much smaller than the overall gaming market. Take Ethereum as an example (the dominant blockchain in this field), key metrics like trading volume and user numbers have both declined significantly, as can be clearly seen from the chart below (the second chart needs to be read from right to left).
Animoca's B2B strategy: becoming the market engine for GameFi
Given the current market environment, it seems surprising that Animoca has been able to nearly triple its profitability in a year, but that is precisely what it has achieved. How did it do this? By becoming a major liquidity engine or market maker for GameFi.
Yat Siu realizes that providing financial backend support to these companies is more robust, safer, and possibly more profitable than launching more games in an already competitive market. "This is the evolution of the business," Siu said. "We know that many small companies lack such financial infrastructure or relevant experience when launching games. We buy their tokens and provide capital market support, such as OTC trading. It sounds very financialized, but it's actually just an extension of what we call the publishing business."
What impact does this have on its business? In 2023, most of the company's revenue came from its Web3 operations, including wholly-owned projects like virtual worlds, chess games, and online education platforms. However, from 2023 to 2024, a year of high activity in the crypto industry, that revenue dropped by 39.5%. Yet the company's profits increased by 185% year-on-year. How was this achieved? Its digital asset consulting business grew by 114%, which is where all capital market activities are concentrated.
Can this kind of growth be sustained?
Delta-neutral strategies like market making can be profitable both inside and outside the crypto industry, and data shows that Animoca has found its unique product-market fit in this area. However, investors need to be confident that the company can continue to expand this revenue line, especially in light of the continued low performance of key GameFi indicators.
This question is difficult to answer. One data point that can provide clues is the trading volume of GameFi tokens on decentralized exchanges (DEX). As shown in the image below, the trend remains negative even when only observing Ethereum-based tokens, although daily trading volumes still reach hundreds of thousands of dollars. Other blockchains like Polygon and BNB show similar trends.
This is important because DEX trading volumes more accurately reflect real user demand for specific tokens, while CEX trading volumes tend to be more speculative. It is currently unclear how much of this trading volume is conducted by Animoca on behalf of clients, which represents a significant blind spot for investors.
Supplement
An optimistic interpretation of Animoca's performance is that the company has found a way to operate profitably before the next wave of GameFi arrives, assuming such a wave will occur. In this regard, Yat Siu noted that President Trump's support for the crypto market is particularly important, as the unfavorable regulatory environment in the US hinders major American gaming companies from entering the field.
"We work with large institutions, essentially bringing them into the crypto space," he said. "Doing this globally is somewhat comfortable, but in the US, communicating with large gaming companies can be more challenging. They do regularly communicate with us, saying, 'Hey, tokens are interesting, we should pay attention to them.' But... when the legality of certain tokens is not 100% clear, you can only rely on lawyers' estimates." Siu hinted that such attempts might be rejected.
If, and this is a big if, Siu and Animoca can get a major company like EA Sports to join, it could address another major issue in crypto gaming: the lack of entertainment value, as players react poorly to the over-financialization of the industry. "When you try to attach something that is just a monetization mechanism to a normal gaming experience without enhancing it, players will oppose these monetization strategies dominated by companies," Hickey said.
This article is a collaborative repost from: Deep Tide
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