As Alibaba Group Holding Ltd. (BABA) kicks off a U.S. initial public offering that could raise as much as USD 24bn, the Chinese e-commerce company is charging into new areas to keep its growth momentum strong. That is according to a fresh article by The Wall Street Journal (WSJ).
Here is what WSJ writes:
“Alibaba’s latest venture is in mobile games, where in recent months the company has bought a stake in a U.S. mobile-game publisher, teamed up with Chinese and foreign game developers and aggressively hired staff in China as well as other countries such as South Korea. Alibaba is going into mobile games to boost revenue and stay ahead in China’s fiercely competitive Internet market, where its chief rival, Tencent Holdings Ltd. (TCEHY) , has a leading position in online games. In its battle to win over consumers, Alibaba is offering mobile games to keep smartphone users engaged even when they aren’t shopping on its e-commerce sites.
For Alibaba and other Chinese Internet companies, the growing popularity of mobile games makes the market too attractive to ignore. China already has more than 350 million mobile gamers—more than those in the U.S. and Japan combined, according to research firm Newzoo. The firm expects China’s mobile-game revenue to nearly triple to $6.6 billion in 2016 from $2.28 billion last year, overtaking the U.S. and Japan as the world’s largest market. Newzoo projects U.S. revenue in 2016 to reach $6.4 billion and Japan revenue to hit $6.1 billion.
Alibaba only started offering games through its Mobile Taobao shopping app and Laiwang messaging app in January. But even latecomers have opportunities to build sizable businesses, as the market is still developing, says Vincent Cheuk, a China technology partner at PricewaterhouseCoopers.
Alibaba doesn’t disclose its revenue from mobile games. More than 95% of its total revenue of about $2.5 billion in the second quarter came from its e-commerce businesses. By comparison, rival Tencent, whose main businesses are games and social networks, derived the majority of its $3.2 billion in second-quarter revenue from games played on personal computers and mobile devices.
Alibaba is “very focused on becoming one of the top players,” in China’s mobile-game market, said Kevin Chou, chief executive of U.S. mobile-game company Kabam Inc., in an interview. In late July, Alibaba agreed to buy a roughly 10% stake in Kabam for $120 million and got a seat on the San Francisco-based company’s board.
Kabam, whose shareholders include Time Warner Inc.’s Warner Bros. and MGM Holdings Inc., is known for movie tie-in games. Early next year, Kabam will start distributing a mobile-game spinoff of Warner Bros.’ Hobbit series in China through Alibaba’s mobile apps. When the latest film in the Hobbit series, “The Hobbit: The Battle of the Five Armies,” hits theaters in China, people can play the game and also buy movie tickets on Alibaba’s mobile apps, Mr. Chou said.
Alibaba and Kabam have also discussed plans to distribute Kabam games through UCWeb Inc., a Chinese company Alibaba took full control of in June. UCWeb, which runs one of the major mobile-game platforms in China, will be a significant driver of Alibaba’s game business, analysts say.
Last week, a new game in the Angry Birds series from Finland’s Rovio Entertainment Ltd. became available on three Alibaba mobile apps. South Korean game developers Pati Games and 4:33 also say they plan to distribute some of their games through Alibaba’s mobile apps in China.
“I heard they [Alibaba] are meeting up with multiple gaming companies here,” said an official at a South Korean mobile-game company, which has held talks with Alibaba, but declined to provide more specifics.
Alibaba declined to comment, citing a quiet period ahead of the company’s IPO.
Job listings on Alibaba’s website now include dozens of game-related positions including programmers, marketers, strategists, data analysts and legal experts.
In Seoul’s posh Gangnam district, Alibaba set up a new office a few months ago that focuses on finding South Korean mobile-game partners. It recently hired Coco Hwang, who joined this year from rival Tencent, and Tony Park, a former vice president of Shanghai-based online game company The9 Ltd.
To woo game makers quickly to its mobile platforms, Alibaba is letting them pocket 70% of the revenue generated by each game they supply—more than what many other game platforms offer. Tencent mobile-game executive Bo Wang said in a recent interview that the company’s revenue-sharing terms vary for different games, but declined to give specifics.
Alibaba’s foray into games still faces challenges. The Chinese company and its partners are trying to figure out how to appeal to Alibaba’s app users, who want to shop, not necessarily play games, said Jeff Lyndon, a co-founder of Chinese game publisher iDreamSky, which distributes games through Alibaba, Tencent and other platforms.
One attempt to bridge the shopping-gaming divide is “Nikki UP2U: World Traveller,” a game on Mobile Taobao that allows players to dress up characters in various costumes. For this game, Alibaba teamed up with clothing brands that run stores on its Tmall online-shopping site and made it possible for players to buy the same clothes as the ones they pick for the game’s characters.
Alibaba needs some time to build up its mobile-game business, even though its large e-commerce customer base is an advantage, said Chang Tianren, an executive at Chinese game publisher Kongzhong. “Even for Tencent, it took years to build its gaming empire.” – End of article”
China Mobile Gaming and Entertainment (CMGE) is one of the main players in the Chinese mobile gaming market and ranks number 1 among China’s mobile game publishers with 18.1% of market share in China (in terms of gross billings), according to the 2014 First Quarter Mobile Game Market Analysis Report published by Analysys International. That is actually an increase compared with the Analysis Report published in February when CMGE’s market share was said to be 17.9% of gross billings generated by all mobile game publishers in China in 2013.
Given its very attractive valuation, CMGE is currently trading at a PE-ratio of around 15x expected 2014 earnings and around 10x expected 12-months-forward earnings, CMGE might very well be on the radar of Alibaba as potential acquisition target.