Voodoo Gets Real

Voodoo Gets Real

Earlier this week, Voodoo announced they will be acquiring social media application, BeReal for €500m.

While this announcement was met with surprise and speculation from many in the gaming industry, we believe that the value of BeReal to the hybridcasual publisher extends far beyond cross-promotion and growing the breadth of BeReal’s feature set and that this was a reasonable price to pay.

This week, we will be looking more closely into how these businesses have matured in a post-IDFA world and where we believe the future of BeReal lies.

The Voodoo Machine

Voodoo is one of the largest and most successful mobile publishers in the world today. Since their founding in 2013, they have raised over $570m in disclosed equity financing from Goldman Sachs, Tencent and Group Bruxelles Lambert (CB Insights). Most recently in January 2023, they received €30m in debt financing from Eiffel Investment and Turenne Capital.

Within the gaming world, Voodoo is best known for popularizing the mobile hypercasual genre. By December 2019 (the year between their $200m investment by Goldman and their corporate minority investment by Tencent), their games had amassed 2.6 billion downloads, 300 million monthly active users (MAUs), and 1 billion individual players (VentureBeat).

In April 2021, the music stopped. Apple released iOS 14.5 which included the App Tracking Transparency (ATT) framework which required apps to ask users for permission to track their activity across other apps and websites; a move which had significant negative ramifications for the hypercasual genre. Voodoo felt the pain too. Their hypercasual core business revenue halved while user acquisition (UA) costs skyrocketed. At the same time, Voodoo had begun to make moves outside of pure hypercasual game development. They finalized two acquisitions in the 2nd half of 2021: Bidshake (a cross-channel optimization tool) and Beach Bum (a social game development studio).

This drastic industry change forced Voodoo to evolve into their next phase as a business. Instead of 700 studios, Voodoo now runs a “lean” organization of 100 teams. This well-oiled machine produces over 1000 prototypes a year and on average, 100 prototypes are in progress at all times (Deconstructor of Fun). This experimentation has a high bar for success - only around 4 games (~0.4%) make it to full launch.

In addition to the company’s structural changes, they have also made the strategic pivot away from hypercasual into “hybridcasual”. Homa Games defines these as games that “[maintain] the simplicity of hypercasual games while including more sophisticated progression mechanics. This genre requires audiences to make time to play to improve long term user engagement”. As gathered by the Deconstructor of Fun, Voodoo has 12x’d their revenue from the hybridcasual genre between 2021 and 2023. In 2023, hybridcasual made up ~25% of their overall revenue.

BeReal: The Anti-Social Media, Social App

The product loop: The core loop of BeReal has not changed very much since its initial launch in January 2020. BeReal sends all users a daily notification at a random time. From this point onward, users can capture and share a double-sided photo (a point-of-view shot and a selfie). Only after posting their own photo can a user view and react to the candid photos shared by their network that day.

Today, in addition to sharing a photo to their full friend list, users can create closed groups where photos can be privately shared (similar to the “Close Friends” feature on Instagram). The platform’s primary focus continues to be cultivating authentic relationships with a close network of friends.

Monetization: Currently, there is none. BeReal does not have a consumer-facing business model. Not only is BeReal 100% free, but users are not shown ads either. While some could make the argument that BeReal could be selling user data, there are very limited opportunities to gather any valuable data. Up until February of this year (>4 years after release), there were no brands on the platform, and celebrities and influencers could only be mutually added (no follower-type relationships). Prior to this change, no external companies were shown on the app. We anticipate this has had very low traction so far.

GetReal: Justifying a €500m Purchase

Voodoo’s acquisition of BeReal marks their first in 3 years.

The announcement of this acquisition sparked a flurry of commentary across the gaming industry, ranging from critique of the price tag to brief justifications of the acquisition due to user count and cross-promotion opportunities.

Instead of the traditional approach of evaluating BeReal’s direct financial impact on Voodoo, given their lack of monetization channels, it is more appropriate to measure the potential value of BeReal’s highly engaged user base.

Valuing a BeReal user: As we mentioned above, BeReal is not meaningfully monetizing its users. Based on our estimates, Voodoo is valuing BeReal users at $8-13 per monthly active user. This is significantly less than the expected value per user of other platforms such as Snap or Pinterest based on their last private round. However, these platforms were actively monetizing at that point.

Note: Voodoo reported that BeReal has 40m “active users” today. It is unclear how Voodoo defines an active user, so for the purpose of the exercise above, we assume that at least 100% of these active users log in monthly, resulting in an expected value of a MAU of $12.50. If this number is higher, 50m or 60m MAU for example, the value per MAU would be $10 and $8.30 respectively.

Despite these low estimates of potential, where BeReal’s opportunity lies is in monetizing their strong cohort of highly engaged users. 50% of BeReal’s active users (20 million users) use the app at least 6 days a week.

If all of these users who use the app at least 6 days a week are counted as daily active users (DAUs), the expected potential value of a daily active user (DAU) is $25. This is still amongst the lowest expected value per DAU across all social apps with a meaningful exit.

Leveraging BeReal in the Voodoo Portfolio

It will be a difficult endeavor to capture the full potential of the BeReal platform based on the “breakeven” price of $25 per DAU. To achieve this, Voodoo has shared that they intend to grow BeReal into a “next generation social platform”:

“By leveraging Voodoo’s platform and expertise, BeReal will now have the opportunity to further innovate around new features and refocus on growth through organic and paid marketing across markets.”

We believe that in addition to this obvious intent to grow the BeReal platform, there is low hanging fruit in leveraging the network and data for the rest of the Voodoo portfolio:

1. Cross-promotion - helpful but not the end-game: Voodoo cannot afford to justify the acquisition of BeReal users if their plan is solely to cross-promote them into their games portfolio. Relatively, the above expected value per player ($8-13 per MAU) is steep when compared to the expected life-time values (LTVs) of Voodoo’s games. For context, Voodoo expects that the average one-year lifetime value for a game in their hybridcasual portfolio is ~$3 (Udonis).
2. Customer insights - too nascent to be valuable: As we mentioned, the introduction of brands, celebrities and influencers into BeReal is still very recent and we do not believe enough data has been collected in-app on users. We also believe that Instagram will still be the preferred way for customers to interact with brands and larger celebrities. Where we see a potential niche is in the microinfluencer or small-medium brand tier as BeReal promises an “unfiltered” or “behind-the-scenes” glimpse into these profiles.

While we think these ancillary moves are no-brainers, we do not believe the plan to grow the BeReal platform alone will be successful enough to return the meaningful investment. The core loop is not a strong enough hook to cater to the masses and too much change to the value proposition (being an anti-social media, social media network) will alienate its loyal user base. However, the simplicity of the platform lends itself to be a versatile piece in the Voodoo machine. In fact, there are a couple of other levers they can pull:

1. Integrate with Wizz (+$16 per DAU per year): Launched by Voodoo in 2019, Wizz is a social networking app designed for teens and young adults (13-21). The core interaction has the user swipe through profiles of other users, chat with them live, and join group chats to meet new people and make friends around the world. The apps’ user bases share the same user demographic (in fact, Wizz does not yet have a dedicated offering to those over the age of 24). BeReal can offer an opportunity for new friendships to grow beyond initial conversations and allow friends from far places to stay in touch through its daily engagement loop.
   Wizz monetizes through both IAP and subscriptions ($6.99 per week or $9.99 per month) with similar benefits to apps like Raya or Hinge. They reported in February 2024 that they have 16m users (unclear on what cadence) and 1.6m daily active users. If half of Wizz’s monthly active users use the app daily (similar to Snap) and the app monetizes at a similar rate as Hinge, an integration of Wizz with BeReal could add ~$16 per DAU per year in revenue.‍
2. Follow the NY Times playbook, in reverse (+$6 per DAU per year): Since their >$1m acquisition of Wordle in January 2022, games have not only become where users spend the most time, but also has become one of the main profit earners. This playbook is currently being followed by LinkedIn and we believe that it can be applied to BeReal.
   There are over 1 million NY Times games subscribers ($6/month or $50/year) and 10 million people play every day. This is the equivalent of ~$6 in annual revenue per daily active user. Introducing daily games, like the NY Times Wordle or LinkedIn’s Queens, is complementary to BeReal’s (already daily) photo check-in and compounds the strength of, and time spent on, both the social network and gameplay.

Even without cross-promotion or introducing advertising, pulling both of these levers together would drive up to $22 in added value per DAU each year. Assuming there is no growth in the number of active users on BeReal, the €500m is recouped every single year.

Positioning for IPO: As we highlighted in our most recent quarterly report, we believe that Voodoo is starting to position itself well for an IPO. They have been ruthless in working toward sustainable, profitable growth and by positioning themselves as a socially-enabled ecosystem, they may be able to reclassify themselves in the financial markets as a social network (4-6x) vs solely a mobile game publisher (2-3x).

Takeaway: While the price tag of BeReal may seem steep on the surface, the expected value per user ($8-13 per MAU or $17-33 per DAU) is within reasonable expectations given the platform’s potential.

However, introducing new features and optimizing marketing and retention, even by such a well-oiled machine like Voodoo, is unlikely to be successful alone. Ancillary measures such as cross-promoting users or selling user data is still not enough to justify an investment of this magnitude. However, while heavily critiqued, the strength of BeReal is in the simplicity of the app. This simple core loop can serve as a blank slate, either be used as a utility engagement tool for its existing social app, Wizz, or to serve as the base for a “next generation” Facebook, with an even heavier emphasis on games. We believe that with these changes, each DAU can be worth up to $22 per year.

We are excited to see game companies continue to be at the forefront of this next generation of social platforms and beyond.