"Mobile games have a lifespan that that a guinea pig would not envy!"
Mobile phone applications have become a big part of our lives. Other than the common social media applications such as Facebook, Twitter and Instagram, Candy Crush Saga is one of the biggest names in the App store. Introduced originally as a game for Facebook in 2012, it has now gone on to be one of the most popular games for smartphone users. How has it managed to stay popular for so long? I normally get bored of a game after one or two weeks of playing it which was why it came as a bit of a surprise for me when I learnt that Activision Blizzard paid $5.9bn for the owner of the game, especially since they have not been keen on the idea of mobile and social gaming. This leads to the question - how exactly did they decide that this figure was appropriate?
Activision Blizzard should have known how much King Digital Entertainment was worth before agreeing to pay nearly $6bn for them. There are certain factors that need to be taken into consideration before deciding on a purchase price. For instance, there are certain assets in a company which are difficult to assign a numerical value to. Another thing to consider is how efficient the market is - if the market is efficient it is safe to assume that the market share represents a true value of the company. However, a downside of this is that only about 3-5% of shares move everyday so it is actually a small part of shares that give an indicator of what the share price might be. All these factors are likely to have been considered before Activision Blizzard decided to buy King Digital Entertainment.
Why did Activision Blizzard decide to make this investment in the first place? Games normally have a short life span and Candy Crush Saga reached its optimum in 2012 and has been slowly declining since then. Within a few short years, I suspect that it is just going to be another game people used to play to pass time. According to the Financial Times, King had exceptionally good cash flow and they have started to diversify so although a large chunk of their revenue came from the increase of sales from Candy Crush ($250m to $324m) so this may have made them look more attractive to the buyers. Candy Crush is also a well known name which has the King logo on it so the purchase of the company would mean that the patent would appear on Activision Blizzard's balancing sheet, making their overall value higher.
Activision Blizzard is known mostly for games such as Call of Duty, StarCraft and Warcraft. Personally I have never been a fan of these games, but I did play Candy Crush for a bit. Therefore, I think that these games are in completely different markets. Purchasing King was a very smart move by Activision Blizzard because it allowed them to go into the market and they immediately have access to a new customer base. It is also said to increase Activision Blizzard's earnings by about 30% next year so this is definitely a very good incentive for them to purchase the company.
I believe that pricing a company for a sale is a subjective matter so it is a difficult task. The value of King is said to be more than it's cash flow - and they generated $600m in cash alone last year. Considering that the deal was closed for $5.9bn, I would hope that this is true! Personally, I feel like the company has been overvalued and that Activision Blizzard should not have paid this much but then again, the purchase has given them a number of benefits such as a place in a whole new market so their potential number of customers would have increased vastly and a large potential increase in overall earnings.
That's my opinion anyway, what's yours? Let me know in the comments below!
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