Activision Blizzard, Inc., the American parent corporation for Activision and Blizzard Entertainment and fifth largest gaming company by revenue in 2014, is planning to purchase the Dublin-based maker of Candy Crush Saga for $5.9 billion. Not only will this move help Activision establish itself as a leader in the ever-growing mobile gaming industry, but it will also help the company save money on taxes. By using $3.6 billion of cash stored outside the United States to finance the acquisition of King Digital Entertainment Plc, Activision will shave about $1 billion off of its tax obligations.
Activision, known for popular games such as Call of Duty and World of Warcraft, is being rather strategic with this purchase. By adding Candy Crush Saga to its repertoire, Activision is wisely tapping into the smartphone-based play market. At a price of $18 per share, the company is also paying a good 20% less than King’s initial public offering price of $22.50. The stock’s pricing fell after King’s IPO due to fears that the company would fail to diversify and produce games that could rival Candy Crush Saga in popularity and revenue.
Though Candy Crush Saga itself is free, it’s so popular and well-received that users are known to pay for extra features. As of December 2012, Candy Crush Saga had over 10 million downloads, and in July of 2013, the game had an estimated 6.7 million active users. Furthermore, that year, the game brought in revenues of a whopping $633,000 per day in the U.S. section of the iOS App Store alone. By November of 2013, Candy Crush Saga had reportedly been installed 500 million times across Facebook and iOS and Android devices, making it the most downloaded iOS app for 2013.
It’s no secret that mobile gaming is a huge money maker, with revenues expected to reach the $36 billion mark in 2015. The Candy Crush deal is sure to propel Activision’s value and share price. In fact, the move prompted Moody’s Investors Service to upgrade Activision’s credit rating to investment grade. The popular ratings agency cited strong diversification across multiple genres and gaming platforms, as well as the company’s established record of developing profitable franchises with international appeal, as a reason for its decision to offer up a more favorable credit rating.
The move to acquire King is a smart one for a company with a history of pretty much ignoring the mobile gaming market since it started gaining traction. With all the trends pointing to a need to jump aboard the mobile gaming bandwagon, Activision had a choice to make: build its own mobile gaming unit from the ground up, or purchase a company that already put in the time and laid the groundwork for success. Clearly, the company opted for the latter, and industry experts seem to agree that the move was a wise one by all accounts. Although Activision paid a relatively high price to get a piece of the mobile gaming action, it’s a move that’s very likely to pay off in the long run.