4 takeaways from Activision Blizzard’s $5.9-billion takeover of King Digital …

3 Nov 2015 | Author: | No comments yet »

4 takeaways from Activision Blizzard’s $5.9-billion takeover of King Digital Entertainment.

UPDATED: Activision Blizzard’s stock price fell as much as 6% Tuesday in early trading before bouncing back and reaching all-time highs, as investors digested the mammoth size of its proposed acquisition of mobile-gaming leader King Digital Entertainment.The giant company’s acquisition of King is the biggest merger in gaming since the combination of Activision and Blizzard in a nearly $19 billion deal in 2007, and it cements the new publisher as one of the biggest players in every gaming platform — home consoles like the PlayStation 4, PC online games like World of Warcraft, and mobile. “This is huge. Activision Blizzard, whose core business revolves around console and PC titles, said late Monday that it had agreed to acquire King in a deal valued at $5.9 billion.

The deal, announced Monday night and expected to close in the spring, is unlikely to affect fans of games such as “Candy Crush Saga” and “Farm Heroes.” But it is of major consequence for Santa Monica-based Activision Blizzard, which through King’s emphasis on games for smartphones is now poised to generate near-equal amounts of revenue from computer, console and mobile games. It creates the biggest games powerhouse in the Western world, only second to Tencent on a global scale,” said Peter Warman, the chief executive and game analyst at market researcher Newzoo. “With game publishers becoming true cross-screen and transmedia companies, this is a huge move and gives Activision Blizzard a unique reach across all screens on a global scale.” Warman noted that for the first half of 2015, the combined revenues of Activision Blizzard and King are $3.4 billion, which means the merged company will be bigger in games than Microsoft ($2.7 billion), Sony ($2.4 billion), and Electronic Arts ($2.4 billion). Activision will use approximately $3.6 billion of offshore cash on its balance sheet to fund the deal, along with $2.3 billion in debt financing under existing credit agreements. Also Monday, Activision posted better-than-expected financial results for the third quarter of 2015, and raising expectations for Q4 and full-year 2015 earnings.

If that sounds to you like a lot to pay for a game company, consider that King Digital — most famous for its “Candy Crush Saga” mobile games — had revenue of $2.1 billion in the 12 months ended in September. King went public in March 2014 at a worth of $7.1 billion, but Activision Blizzard is spending less than $5 billion to buy it, excluding the $920 million in cash King has on hand. On top of its Saga series, King has been rumored to have several midcore games [those that add more traditional elements but still work in small, mobile-friendly time chunks] in development that will see daylight soon. King has strung together several quarters of slowing sales, which are driven by a tiny segment of players who pay for extra “lives” and other optional features in games. On Monday, Moody’s Investors Service upgraded Activision Blizzard’s debt rating to investment-grade, citing the company’s strong position in gaming and said its long-term outlook is stable with the planned King acquisition.

But there are some issues that Activision Blizzard need to address. “If you compare King to, for example, Supercell, the former has produced 1.5 times the revenue of the latter, but with 1,200 staff versus just 150. Industry experts saw hope in new games to restore revenue growth, but a single investor, Apax Partners, owning nearly half of the company, could have added to the heat. “We can only surmise that perhaps the management team and key investors were tired of being spurned by the market as a public company and wanted to be able to totally focus on game creation,” Doug Creutz, a financial analyst at Cowen and Co., wrote to investors Tuesday.

It’s unclear whether the depressed valuation for King could signal bad news for publicly-traded mobile gaming companies such as Zynga Inc. and Glu Mobile Inc. or for large startups such as Pocket Gems and Scopely. Digi-Capital, a tech advisory firm, said in its recent report that in the first nine months of 2015, game investments, mergers, acquisitions, and initial public offerings were collectively down 82 percent compared to a year earlier. The King deal still represents a premium on its recent share prices, and shares of both Zynga and Glu — which have been dropping significantly — were up several percentage points on Tuesday.

Of that decline, games investments fell the least at 35 percent below last year, games M&As deals dropped 74 percent, and the games IPO market evaporated, said Tim Merel, the managing director at Digi-Capital. “We thought that a few big deals could turn things around before the end of the year, and the Activision Blizzard/King deal has certainly done that in terms of the headline figure for games M&A,” Merel said. “It also fits in with the industry structure that has emerged in the last two years, where games leaders will continue to dominate the $45 billion mobile games revenue we forecast by 2018. The NPD system has 2 million active users across the country, providing a pretty good representative sample of the habits of Americans on their smartphones. Activision Blizzard could have invested further in internal mobile game development, but it might never have caught up to King in quality or speed, Chief Executive Bobby Kotick told analysts Tuesday. Already [King CEO Riccardo] Zacconi has commented on the access to Activision’s intellectual property, suggesting that this was a key part of the conversation. Only “Clash of Clans” and “Game of War: Fire Age” are more popular among NPD’s sample. iPhone users spent an average of $39 on “Candy Crush Soda Saga” in the six months included in NPD’s study period.

Activision Blizzard doesn’t report how many people play its games overall, but adding King’s 474 million players will give it more than 500 million monthly users, it said. With mobile user acquisition reaching $3.85 [per user] on iOS and $3.47 on Android, a picture emerges in which this new mobile division can leverage the strength of both companies to maintain its leadership position in the mobile market.” SuperData noted that the Candy Crush series has generated $4 billion for King, with a profit margin of 40 percent.

All for one game people play while waiting in line at the supermarket or on the subway. “With a combined global network of more than half a billion monthly active users, our potential to reach audiences around the world on the device of their choosing enabled us to deliver great games to even bigger audiences than ever before,” Activision CEO Bobby Kotick said in a statement. Children use smartphones, tablets and iPod touches to game more than other device type, and their usage of computers to game has declined by 22 percentage points since 2013, according to research firm NPD. Part of that will involve reaching deep into Activision Blizzard’s historical portfolio to revive old games for “new opportunities,” Kotick said. NPD video game industry analyst Liam Callahan called it an “excellent move by Activision Blizzard to diversify,” noting that overall 51% of gamers are women.

Here you can write a commentary on the recording "4 takeaways from Activision Blizzard’s $5.9-billion takeover of King Digital …".

* Required fields
Twitter-news
Our partners
Follow us
Contact us
Our contacts

dima911@gmail.com

ICQ: 423360519

About this site