Activision Blizzard – Game on!

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Activision must integrate to do what King cannot.

• Activision’s acquisition of King has very little to do with Candy Crush and everything to do with King’s users and the fact that the gaming segment is wide open on mobile.
• Activision has announced that it will acquire King Digital for $18 per share in cash or $5bn (including acquired cash).
• This is 6.4x 2015E adj-EBITDA and will be paid for with off-shore cash and a committed debt facility.
• King will continue to run as an independent entity under the current management team.
• This is where the danger of this acquisition not working lies.
• Activision Blizzard has virtually no presence on mobile devices despite its strength on consoles and PCs, and with this acquisition it gains 500m mobile monthly active users
• This is critical because although mobile is only casual gaming, it is a growing segment and one where users spend 32% of their device time.
• Furthermore, I think that the monetisation opportunity is significant as King already has more than 10x the number of users on Xbox Live, 5x PlayStation Network and 10x Twitch.
• I think this opportunity is further enhanced by the fact that on mobile, the gaming segment is wide open.
• Neither Apple nor Google have managed to achieve a real grip on this segment while Sony, Microsoft and Amazon (Twitch) are all really struggling with traction on mobile devices.
• This leaves the most important segment of the Digital Life Pie wide open for someone else to come in and monopolise it as Facebook has done in social networking.
• This would require a series of hit titles and a thriving and integrated multiplayer gaming environment that covers all of the titles on offer.
• King’s problem has been that it is effectively a one hit wonder and does not really have a multiplayer offering.
• Candy Crush is still a top revenue generator and it has extended its life somewhat with Candy Crush Soda but both of these have limited lifespans.
• Activision has a good stable of console and PC games but very little presence in mobile and the combination of the two gives a good spread across all platforms.
• Furthermore, with 500m users, it is already well over the RFM hurdle of 300m users that are required for an ecosystem to make a good return on its investments.
• However for this to work Activision Blizzard and King Digital need to be fully integrated such that there are no issues around the sharing and accounting of assets that are used to grow and monetise the mobile segment.
• Furthermore, any multiplayer gaming asset must be seamless across both King’s properties and Activision’s so that players get the best possible experience.
• With King remaining independent, this will be much more difficult to achieve and so I hope that this is a short-term state of affairs.
• Time is not on Activision’s side as it must get its mobile strategy right before the charm of Candy Crush fades and users drift away.
• That being said, it has lasted far longer than I thought it would giving Activision a real opportunity to make its mark on the most important segment of Digital Life.
• Going on from there I could see real upside in Activision in the ecosystem but it has a massive amount to get right first before I could even consider this possibility.