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 - Get Report) agreed to pay $100 million for Cie Games, which created the popular Racing Rivals.

Google's (GOOG - Get Report) pursuit of Twitch Interactive Inc. indicates the appeal of games technology, which Digit-Capital reports had $2.8 billion worth of M&A in the latter half of 2013 and the first half of 2014. Twitch streams broadcasts of games alongside video of the gamers themselves. The company has raised funds from Thrive Capital, WestSummit Capital, Take-Two Interactive Software (TTWO - Get Report), Alsop Louie Partners and Bessemer Venture Partners.

Google and Twitch would not comment on a deal, which has been reported.

"Google is trying to do a lot more with Google Play, and gaming seems to be a very big component of Google Play these days," said CRT Capital Group analyst Neil Doshi. Twitch would presumably help lure gamers to Google's online gaming marketplace.

Twitch has "extremely high engagement rates" among a young, male, fairly affluent audience, according to SNL Kagan analyst Seth Shafer. "Any media company (new media or old media) that's concerned with targeting millennials and/or cord cutters would be envious of the dedicated audience that Twitch has built up," he wrote in an email.

If Google buys Twitch, the analyst suggested that Major League Gaming and Machinima Inc., which has funding from Time Warner Inc.'s Warner Bros. and operates the biggest network dedicated solely to gaming on Google's YouTube, could draw interest.

Shafer also pointed to Curse Inc., which recently debuted an online voice service that allows users to chat during games. Curse raised $26 million from GGV Capital and Multiplier Capital in July.

Digi-Capital said that Asian groups have been the biggest acquirers, looking for games that they can sell in their home markets and for management teams that can help them expand globally.

Chinese group Tencent Holdings Ltd. recently paid $500 million for a stake in South Korean holding company CJ Games Corp., and Japanese telecommunications SoftBank Corp. led an investment for a majority position in Finnish gaming outfit Supercell Oy for $1.5 billion in October.

Kabam, which is headquartered in San Francisco but has offices in Asia and Europe, has actively pursued content from overseas. Last year, the company launched a $50 million fund for Chinese, Japanese and South Korean game developers. The Kabam Western World Developers Fund would support Asian gaming companies looking to expand in North America and Europe.

With the new funds from Alibaba, Kabam has a powerful partner to further distribute its content in China.

Kabam's team on the Alibaba deal included in-house lawyers Alexandra Sepulveda and Tyler Gee.

Israel Halpert and Ethan Zweig of Citigroup Global Markets Inc. and JPMorgan Chase & Co. banker Mark Fiteny advised Kabam, which received counsel from O'Melveny & Myers LLP lawyers Paul Sieben, Katherine McCormick, Janiece Jenkins and Gail Guabello.

Kathryn Sodol of Simpson Thacher & Bartlett LLP advised Alibaba.