Bets on Casual Games Paying Off 7 comments
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By Thomas Rasmussen
Fittingly enough, on the one-year anniversary of our piece predicting continued consolidation of the social and casual gaming space, Electronic Arts (ERTS) announced the industry’s largest acquisition. The Redwood City, California-based videogame giant acquired Playfish on November 9 for $275m, although an earnout could mean that EA will pay as much as $400m over the next two years for the company. We estimate that Playfish, which will be slotted into the EA Interactive division, generated about $50m in trailing sales. Overall M&A continues to be strong in the still-niche gaming sector, with deal volume up about 25% from last year with about 35 transactions inked so far in 2009.
With the gaming industry seemingly in recovery mode after not-so-horrible earnings announcements from industry bellwethers EA and Activision Blizzard (ATVI), we’re confident that more videogame and media companies will look to add social networking games. (After all, the big gaming players have used M&A as a way to buy a piece of a fast-growing, emerging market. For instance, EA spent $680m in cash four years ago for Jamdat Mobile to get into wireless gaming.) With Playfish off the board, which other social gaming startups might find themselves targeted by one of the big gaming vendors?
While there are literally hundreds of promising startups, most are too small to be important enough for a big buyer. Nevertheless, there are a few firms that have grown – both organically and inorganically – enough to make them attractive acquisition targets. For instance, Playdom, which develops games primarily for MySpace and Facebook, recently reached for a pair of smaller gaming startups. The company also recently raised $43m. Similarly, Zynga recently raised a funding round ($15m) and has also picked up two small startups this year. Two other names to watch in the emerging social gaming market are Digital Chocolate and Social Gaming Network Inc.
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Do you have any evidence at all that ERTS' investment in JamDat is "paying off"? ERTS has been a disaster in recent years.
And Playfish . . . paying up to $400million for a company that had $50m in revenues? That is a very speculative bet. And have you read the TechCrunch stories about how the whole 'social gaming' sector may be based on bogus revenue numbers that may be a bit over-inflated?
I really don't see how you prove the thesis in your title at all! (At least from the perspective of the publicly trading game companies. The VC perspective is irrelevent to us low level investors.)
If you bothered to read EA's quarterly reports, you would see that 680M$ was written down by EA last year and was actualy a major component of their GAAP loss.
Paying off indeed.
Playfish is much less exposed to Social advertising lead gen scams you are referring to.
On Nov 24 02:00 PM GhostOfSpec wrote:
> Paying off? How exactly? Perhaps they are paying off for VCs that
> are selling off these companies to the game makers.
>
> Do you have any evidence at all that ERTS' investment in JamDat is
> "paying off"? ERTS has been a disaster in recent years.
>
> And Playfish . . . paying up to $400million for a company that had
> $50m in revenues? That is a very speculative bet. And have you
> read the TechCrunch stories about how the whole 'social gaming' sector
> may be based on bogus revenue numbers that may be a bit over-inflated?
>
>
> I really don't see how you prove the thesis in your title at all!
> (At least from the perspective of the publicly trading game companies.
> The VC perspective is irrelevent to us low level investors.)
> Thanks for your comments. Please read the first piece linked in the
> very first sentence for some background. As for Playfish, the $400m
> is with a large earnout as we state in the piece. As most earnouts
> go, this is contingent on performance. Don't perform, don't get paid.
> It's a bet on the future of online digital gaming.
In other words, it MIGHT PAY OFF in the future . . . it is certainly not PAYING OFF now.
Thus, the title thesis is still unsupported.
On Dec 02 05:04 PM GhostOfSpec wrote:
In other words, it MIGHT PAY OFF in the future . . . it is certainly not PAYING OFF now.
Thus, the title thesis is still unsupported.
> As I said, please read the first piece for some context ("betting
> on casual gaming"). The bets we talk about in that piece most definitely
> have paid off, big time. As others buy into the sector, so will the
> bets placed on Zynga, Playdom, SGN etc. Appreciate the feedback though.
So you want me to go to your for-pay website for some bad analysis? LOL. No thanks.
Rebecca Swift of Santa Cruz, California filed the lawsuit on November 17th in the United States District Court, Northern District of California. Swift claims that in April 2009, she provided her cell phone number to a Zynga advertiser/lead generator (offered in the form of an IQ test) in order to be texted a code that she could redeem for virtual currency in Zynga’s YoVille! game. Swift was then billed $9.99 on three different occasions as a result of her transgression.
www.gamepolitics.com/2...
Oh, that is a shame.