Wednesday, July 21, 2004

The Cash Valley and the Cash Mountain

Studying an S-1 is always a good opportunity to benchmark your business or your business plan against someone else’s. In this case, an important set of numbers is found in JAMDAT’s revenue and profit in 2002, 2003, and the first quarter of 2004.

JAMDAT went from $1.6M in revenues in 2002 to $13.5M in 2003. JAMDAT lost $6M in 2002 and $7M in 2003. JAMDAT’s total deficit is about $19M. What did JAMDAT buy with the investor’s money they spent?
JAMDAT bought a 2004 where, with enough products, and enough channels, they are made $7M in the first quarter and a profit of $0.7M. With continued growth, JAMDAT may top $40M in revenue this year, and can be solidly profitable. Their business plan worked, and will continue to work. Soon JAMDAT will pile profits on top of the cash they get from the IPO.

Now that JAMDAT is out of the cash valley, and bringing in $84M from an IPO, what will they do? One obvious target for a weapon of that caliber is establishing dominance in key brands – mainly sports brands, with their complex multiparty licensing. JAMDAT will do to sports brands what EA did: Get exclusivity where they can and crush competitors by spending more on product development where they can’t get exclusivity.

This also illustrates how JAMDAT has scaled-up the mobile brand strategy as a defense against console publishers: If JAMDAT can acquire long-term exclusives on sports brands, they can keep EA at bay as long as those exclusives are in place.


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