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Ace2Three earns more profit but lower revenue than Tiger Global-backed RummyCircle

At a time when most tech startups and e-commerce ventures are bleeding heavily, there is a segment where companies are making big profits–online gaming, especially rummy. Ace2Three and RummyCircle are two such companies.

Ace2Three, run by Head Infotech India Pvt Ltd, earned nearly Rs 100 crore in profits (Rs 99.59 crore to be precise) for the financial year ended March 2017. That is a 61% jump from the previous year, when the company made Rs 61.7 crore in profit after tax, according to VCCEdge, the data research platform of VCCircle. Pre-tax profit was Rs 152 crore.

Hyderabad-based Ace2Three’s net sales also jumped 61% to Rs 268 crore for 2016-17, up from Rs 166 crore the year before.

Ace2Three.com is an online multi-player gaming portal offering rummy, a popular Indian card game. The company claims its game is played by more than 8 million online gamers in India. The company offers several variants of the rummy game, including two-player and six-player option games, tournaments, pool games, and more.

The site was launched in 2007 and went commercial in 2008. Users can play games and tournaments; there is an entry fee for some of these games and tournaments. Ace2Three gets revenues from the service charge when a user wins cash prize. Gullapalli says 80% customers play for fun, and not cash. Except for a few states in India, online rummy is legal and is considered as a skill-based game.

Ace2Three’s closest competitor, Tiger Global-backed RummyCircle, made a profit of Rs 65 crore for FY17 on net sales of Rs 381 crore. That’s more than double than the net profit of Rs 30.6 crore on net sales of about Rs 188 crore in 2015-16.

RummyCircle’s expenditure was much higher at Rs 282 crore in FY17, compared to Ace2Three’s Rs 118 crore.

US hedge fund titan Tiger Global had invested in RummyCircle, operated by Play Games24x8 Pvt. Ltd, in 2012.

How does Ace2Three manage to earn such heavy profits?

“Once a customer comes to Ace2Three, he sticks. Trust is the most important factor. Our interface replicates how people play it offline,” said founder Deepak Gullapalli. “This is an entertainment platform and most entertainment companies make good money.”

Ankit Rawal, vice president of revenue at Greedy Games, an in-game ads platform, said mobile wallet and online payments have made it easier for gamers to play online games and this is benefitting companies in the segment.

“They (online rummy firms) know what it takes to succeed. The key here is localisation. They realised that card-based games have loyalty in India, rummy in south India and teen patti in the north,” Rawal said.

In April, Canadian private equity firm Clairvest Group along with its limited partners invested $73.7 million (Rs 474 crore) for a majority stake in Ace2Three. Clairvest now owns a stake of about 86% in Ace2Three, according to the gaming firm’s annual report.

The transaction also saw venture capital investor Matrix Partners making an exit. Matrix had invested in the firm in 2010.

A number of other online gaming firms have raised funding in recent years.

In November, the UK-based Stride Gaming Plc acquired a 51% stake in Haryana-based Passion Gaming Pvt. Ltd, which owns RummyPassion.com, for $3.75 million (Rs 24 crore) in an all-cash deal.

In the online card gaming segment, Pune-hospitality firm Delta Corp Ltd acquired Gaussian Networks Pvt Ltd, which operates online poker site adda52.com, in August last year. The cash-and-stock deal valued the three-year-old startup at around Rs 182 crore.

In 2015, Tiger Global invested in Bangalore-based mobile phone games developer Moonfrog Labs Pvt. Ltd.

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