Alibaba Ups Video Game Presence With Kabam Investment

NEW YORK (The Deal) -- Alibaba Group Holding's $120 million investment in Kabam underscores the value of video games in e-commerce and other sectors.

Kabam had $360 million in 2013 sales from purchases that players make within its free games such as "Kingdoms of Camelot," "The Hobbit: Kingdoms of Middle-Earth" and "Fast & Furious 6: The Game." Sales last year doubled from 2012.

Alibaba plans to market the fast-growing company's games alongside its mobile applications in China, reflecting the increasingly global nature of the games business.

Kabam's new funding aside, VC investments in games has lagged behind M&A, which has been even hotter.

Mobile, gaming and digital boutique firm Digi-Capital Ltd. reported that games acquisitions came to $6.6 billion in the first half of 2014, doubling the rate from late year. Investment by VC's or companies, by which new shares are issued and new money comes into the target company, came to $427 million. Exits by game backers and founders came to 14 times the value of investments in the sector over the period.

"While there is clearly a substantial holding time lag for realizing any investment, this could present a potential opportunity for investors," Digi-Capital Managing Director Tim Merel wrote in an email. "It's also a challenge for early stage games companies trying to raise funds."

From the last half of 2013 through the first half of this year, mobile gaming was the hottest sector, with $4.6 billion out of a total of $12.5 billion in gaming M&A over the period. Mobile deals included Zynga Inc.'s $527 million purchase of mobile gaming company NaturalMotion. In July, mobile gamer Glu Mobile (GLUU) agreed to pay $100 million for Cie Games, which created the popular Racing Rivals.

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