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Analysts react to Activision-Blizzard's $5.9B purchase of King
Analysts react to Activision-Blizzard's $5.9B purchase of King
November 3, 2015 | By Chris Baker

November 3, 2015 | By Chris Baker
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More: Console/PC, Smartphone/Tablet, Business/Marketing



The news that Activision-Blizzard (ATVI) was acquiring Candy Crush creator King caught many off guard ... including professional game industry analysts. “To say we are surprised by this news is an understatement, writes Ben Schachter of Macquarie Research. 

Tim Merel of Digi-Capital notes that this deal comes amidst what had been a relatively calm time for games deal makers. "In the first 9 months of the year, game mergers and acquisition deals dropped 74% and the games IPO market evaporated," he notes. This acquisition turns things around in a stroke.

Like many, Merel wonders whether the ATVI-KING deal will be a catalyst for more large-scale consolidation in the games industry. "The critical question now will be whether other major industry players see this deal as fundamentally altering the competitive landscape, or whether it is simply the bringing together of two market leaders with complimentary businesses," he says. 

We are rounding up analyst reactions to the deal. What does it mean for the future of these two companies? What does it tell us about gaps and weaknesses that Activision-Blizzard perceived in its lineup? Will we all be playing Call of Candycraft Modern Skylander Crush Warfare soon? 

Was this a wise purchase? Is King worth $5.9 billion?

"For the first half of 2015 revenue and income were down and King’s monthly paying users at the end of Q2 2015 was down 27% versus the end of Q2 2014.  Revenue per paying user was up Q2 2015 versus Q2 2014 but it was flat to slightly down Q2 2015 versus Q2 2014. In other words there is some concern that ATVI has made an expensive purchase of a company at its peak." -- David Cole, DFC Intelligence

"ATVI buying KING is not something that we considered possible given ATVI’s historical view of mobile and the types of deals that have been done in the space, as well as KING’s declining growth profile. We think that the King acquisition was clearly at a premium and goes against the trend of buying a company at their peak to buy market share.  The track record for these type of acquisitions is not strong so it strikes us as expensive and risky."

"While we are far from convinced that this is a great deal, we have consistently said over the years that there is only one management team to whom we give the benefit of the doubt, and that is ATVI. While we have many reservations about KING, we have to be somewhat deferential to ATVI’s track record." -- Ben Schachter, Macquarie Research

"People who think the $5.9 billion valuation is too high are wrong. With game publishers becoming true cross-screen and transmedia companies, this is a huge move that will give Activision Blizzard a unique reach across all screens on a global scale. Having King’s experience in running and monetizing mobile games as a service will be a priceless asset to a company that is still on the learning curve when it comes to mobile." --Peter Warman, Newzoo CEO

"While Activision has a strong track record of building games properties that generate revenues over $1bn, it has failed to build any such scale games for mobile. The company is also facing increased competition to the Skylanders franchise from Disney, Nintendo and Lego, and is experiencing declining sales of its annual release of Call of Duty. Declines in existing franchises mean Activision needs to add mobile revenues to mitigate any shareholder anxieties."

"Activision will seek to address both short term revenue growth and longer term profitability targets. But King is past its peak success. The company has seen its revenue decline for both the last two quarters. However, King remains highly profitable which will significantly boost Activision’s overall margins and will give Activision immediate access to a new $1bn+ franchise, which is anchored in the mobile market where to date it has modest exposure." -- Piers Harding-Rolls, Head of Games at IHS Technologies

"Activision bought King to appease a Wall Street that expects every game publisher to be heavily into mobile -- see the Nintendo stock jump on the original DeNA announcement. In that sense, it was a wise purchase -- but it would have been wiser to spend $500 million trying to make mobile work over the last 8 years rather than $6 billion in 2015." 

"ATVI were very actively (arrogantly?) dismissive of mobile and social games back in 2010. I spoke about the danger of this position in my talk at GDC that year, and it turned out to cost them dearly in a large amount of new debt and a significant chunk of cash playing catchup today. The premium over the normal stock price wasn’t that great, so assuming the valuation was rational before, the price seems reasonable." -- Ben Cousins, CEO of The Outsiders and former DeNA, DICE exec

How does King complement Activision-Blizzard? What sort of synergies might we see between their various products and expertise?

"King basically gets Activision-Blizzard a major position in the mobile space.  However we see very few synergies between the two companies in terms of products.  Really it just addresses ATVI’s weakness in mobile and reaching a broader demographic.  King has a much larger audience than Activision, but they have been struggling to monetize that audience." -- David Cole

"Our understanding is that KING has a particularly sophisticated analytics system in place to analyze player data, customer acquisition, monetization, etc… And reading between the lines on the call, ATVI discussed its collection of older IP. We believe that some of these older franchises could be used as the foundation for ATVI games cross-promoted to KING’s audiences. While we don’t expect Candy Crush players to all of a sudden become diehard Call of Duty players, there are many transferable skills that can benefit both ATVI and KING."

"We think that the days of a small company or individual hitting it big with a clever mobile game are basically over. Higher quality mobile devices, marketing needs, and global distribution all play to the strengths of larger companies. The success of Blizzard’s Hearthstone clearly had an impact on ATVI’s view of mobile and proved that mobile could drive meaningful revenue and profits." -- Ben Schachter

"Activision’s strategic move to acquire King, enables Activision to tap enormous scale of the mobile games market and overnight seize a significant double digit share of mobile games. This approach mirrors Activision’s last major strategic deal when it merged with Blizzard, which gave it access to new audiences (online gamers, gamers from Asia), platform expertise (PC) and new market segments (subscription massively multiplayer online games) but at a significant price having entered the segment at a more financially stable stage.

"Activision also plans to run King in a similar fashion to Blizzard – as a separate division and at arm’s length. While this autonomy has allowed Blizzard to flourish, the ability for Activision to leverage King’s mobile expertise and audience will be hampered by this light integration." -- Piers Harding-Rolls

"One key value element is a complementary pipeline in terms of games in development. In addition to its Saga series, King has been rumored to be working on several mid-core games that will soon see daylight. I am certain Activision Blizzard has taken this into account in the valuation." -- Peter Warman

"It compliments Activision-Blizzard in the sense that it gives them a big presence in a market that they had no prior position in. In terms of connections with other aspects of Activision’s business - its going to take titanic effort to get these two very different companies to integrate, I think."

"The Saga framework - King’s billion-dollar invention - can be applied to any single-player game genre, in my opinion. If there was a (literally) incredible collaboration it could result in ATVI properties working well on mobile, but honestly I don’t think it’s practical for the integration of the new company to be deep enough to make that possible in any meaningful way. People joke about Call of Duty Saga, but single-player CoD is already halfway to being a Saga - a linear sequence of missions that get progressively harder." -- Ben Cousins



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