If you’re not a preteen, a relative of one, or someone following the media industry, you probably haven’t’ heard of Club Penguin or its rival Webkinz. The sites provide interactive games and social network like features for preteens. Club Penguin, launched in 2005, was designed to be a fun, safe, game and activity environment for today’s internet enabled children aged 6 to 14; MySpace for the younger set. On the site, kids can adopt and interact with virtual Penguins or chat and play games with other kids on the site.
Wednesday, coinciding with their earnings release, Disney announced they were buying the British Colombia based company for $350m in cash plus revenue performance incentives that could make the kids social network worth as much as $700m.
Though the dollar figure sounds high on first glance, it’s not outrageous given Club Penguins revenue model and subscriber base. According to published reports, Club Penguin has more than 12m registered users and 700k paid subscribers. The approximately $5 per month subscription fee yields about $42m in annual revenue based on those numbers. That makes the deal price less than 9x sales at the initial $350m price (and that is also ignoring the more than 11m non-paying, registered users. If those users and other revenue are factored in, the price could be as low as 5x sales on current revenue).
Club Penguin, which fits well into the Disney portfolio of family-friendly properties, will be renamed Disney’s Club Penguin. There is no plan, as of now, to relocate any of the companies operations from Canada to Burbank.
In unrelated earnings announcements, Disney also reported for their fiscal third quarter. The news was generally favorable. The company reported net income of $1.2b (57cents a share), an increase of 5% over the same period last year. Less one-time costs, earnings were 58cents a share exceeding analyst consensus estimates of 55cents a share. The TV group had solid growth from Lost, Desperate Housewives and Ugly Betty. In fact, all groups but the film division showed steady growth. The film division, which didn’t have a major DVD release in the quarter to fatten its wallet, was off 20 percent to $192m.
More detailed press coverage on Disney’s earnings and finances can be found at:
Correction: the original post listed Club Penguin, and its parent company as being located in Vancouver. The company is actually located in Kelowna, a town several hours east of Vancouver in Canada’s British Colombia.