Digi-Capital: Mobile Games Still Growing, but Lots of Investors Ran Away Post-Zynga

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Mobile is still blowing up, and games are still dominating mobile usage and revenue, according to gaming-focused investment bank Digi-Capital. But in a new report, the bank said investors burned by Zynga’s IPO are not taking the bait.

“In our experience, we haven’t seen a market as large, growing as fast as mobile apps/games,” Digi-Capital managing director Tim Merel said. “We think this could be the highest-growth large technology market today. Yet capital markets aren’t taking advantage of the opportunity.”

The reason? Merel blames the “social games investment bubble in 2011” — culminating in Zynga’s lackluster IPO in December of that year — which raked in about $1 billion in venture investments, out of a record $2 billion invested in games that year. Game investments by VCs sharply dropped post-Zynga, with only $853 million invested in 2012. Investments have recovered to $706 million for the first half of this year, mainly in mobile games.

A few other highlights regarding where the bank sees mobile gaming right now:

Games are responsible for 43 percent of time spent on apps for iOS and Android tablets and smartphones. Focusing only on tablets, that number rises to 67 percent.
Mobile games monetize approximately four times better than all other mobile app categories combined (a graph showing their revenue versus download share is embedded below).
By 2016, videogames are poised to be an $83 billion market, with the bank expecting mobile and online games to represent 55 percent of all revenue, up from 49 percent today.
Digi-Capital is less certain about the future of consoles, noting the Wii U’s inability to gain traction with gamers, but acknowledges that the PlayStation4 and Xbox One could revitalize the market.
The value of gaming mergers and acquisitions dropped 47 percent between Q2 2012 and 2013, but the volume of M&A actually grew 16 percent.