Animoca Brands raises stake in iCandy Interactive

Animoca Brands iCandy Interactive ASX ICI metaverse online gaming Lemon Sky Studios
Animoca Brands has almost doubled its stake in gaming company iCandy to 13.6% for $10 million.

Investors and market commentators focusing on the ASX online gaming space were this week greeted by the news that blockchain game developer Animoca Brands has almost doubled its existing stake in gaming company iCandy Interactive (ASX: ICI).

According to regulatory filings, the transaction was completed for a total of $10 million in exchange for almost 87 million shares, thereby raising Animoca’s stake in iCandy from 7.4% to 13.6%.

The news corroborates Animoca’s previously stated ambitions of conducting strategic acquisitions and investments with the aim of establishing a powerhouse gaming company that is one of the first to secure a beachhead in blockchain gaming.

The transaction is the latest of a series of commercial deals between the two fledgling gaming companies over the past few years. Back in 2020, Animoca Brands sold its mobile gaming portfolio to iCandy for $5 million, including over 300 casual gaming titles.

In November last year, iCandy announced a $44.5 million acquisition of South East Asia-based game art and animation company Lemon Sky Studios and utilised an institutional funding round cornered by Animoca Brands to introduce some of Australia’s leading long-only funds to its share register.

As the leading investor in last year’s funding round, Animoca Brands invested a further $10 million into iCandy to enable its subsequent acquisition of Lemon Sky.

To date, Lemon Sky has an extensive portfolio of AAA games and has worked on major game titles such as Uncharted: The Lost Legacy, the Last of Us Part 2Final Fantasy VII and the Final Fantasy XIV.

In the last financial year ended 31 December, Lemon Sky recorded unaudited revenue of $15.5 million (21% higher than the forecast presented by management during the due diligence stage) and profit after tax of $2.7 million.

The acquisition was approved by iCandy shareholders at an extraordinary general meeting on 13 January with the transaction expected to complete within the next two weeks.

The rationale behind the deal was for iCandy to leverage Lemon Sky’s expertise in game development to improve its own position as a top-end game developer working on AAA games for a bespoke online “metaverse”. The so-called metaverse is an innovative means for users to play and work in a “virtual online world”, involving an immersive virtual reality user experience.

In an update today, iCandy said it has begun working very closely with Leon Sky to chart out a game plan for the 2022 financial year, including building an extensive pipeline of games for the metaverse concept in AAA-quality format.

Also, iCandy has been active in the boardroom in acquiring an 8% stake in fellow ASX-listed game developer Mighty Kingdom (ASX: MKL), as part of an effort to expand its reach in the gaming sector in September last year.

The next generation of Gaming

In a bid to become a first mover in the blockchain/metaverse space, Animoca Brands is actively expanding its market presence via a combination of innovative game development, but also, by progressing “strategic acquisitions and investments” and securing licences for popular intellectual properties.

Just last week, Animoca Brands announced the completion of a US$358.9 million (A$500.3 million) capital raise at a pre-money valuation of US$5 billion (A$6.96 billion).

According to Animoca Brands founder Yat Siu, the company experienced “tremendous growth” in 2021 with the company now well-positioned to be “one of the forefront leaders” in the development of the blockchain gaming industry.

The notion of digital commoditisation is a particular point of differentiation between traditional and blockchain gaming. As a means of evolving the gaming sector, Animoca Brands intends to establish itself as a world leader in gaming technology by spearheading decentralised in-game rewards and monetising video games.

In tandem, the company wants to build an elaborate “open metaverse” capable of introducing supplementary concepts such as ownership, exchange and digital property rights. According to Animoca Brands, the company will achieve this by digitising property rights via non-fungible tokens (NFTs).

In parallel, iCandy is also seeking to ramp up its metaverse development and global expansion ambitions. Earlier this month, the company acquired a 60% stake in Malaysian gaming developer Gameconomy for around $500,000 as part of an “aggressive” merger and acquisition strategy aimed at transforming the company into a “global gaming developer powerhouse”.

According to iCandy, Gameconomy will directly improve iCandy’s backend tools and capabilities while boosting its chances of securing a viable foothold in metaverse gaming. Gameconomy developers are expected to “contribute significantly” to iCandy’s metaverse game development.

NFT-powered blockchain gaming model

Over the past two years, Animoca Brands has developed and marketed a variety of gaming titles that are NFT compatible including the development of its flagship offering: The Sandbox.

According to statements made by both firms, Animoca Brands and iCandy have complementary gaming industry ambitions, working practices and a common vision for game development that includes a heavy reliance on blockchain, Web3 and NFTs.

To highlight its overarching strategy, Animoca has confirmed that its grand digital gaming and lifestyle offering will be decentralised and democratised for the good of all its users.

The Sandbox, has confirmed it intends to emerge as the leading NFT-based open metaverse in the world – an online metaverse where user content, economics and even governance are delegated to contributory players and creators.

As a glimpse of the commercial potential created by blockchain gaming, The Sandbox has experienced strong growth multiples in 2021 and, since its inception, has generated over US$144 million (A$201 million) in gross merchandise value (GMV).

From a player’s perspective, the venture has also attracted over 500,000 users to create a connected wallet as well as over 165 renowned brands including Snoop Dogg, The Walking Dead, The Smurfs, Care Bears, Atari and CryptoKitties.

More broadly, the global video game market generated around $251 billion in 2021, while metaverse-focused aspects are expected to boost the industry’s nominal value beyond $1 trillion by 2028.

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