Software developer Microsoft Corporation (MSFT) has agreed to buy Swedish company Mojang AB, developer of the popular game Minecraft, for $2 billion to boost its Xbox and mobile businesses.
Minecraft, first released for personal computers in 2009, is a popular video game, particularly among youngsters. It allows players to build things using virtual blocks while dodging spiders and other dangers. Since its launch, more than 50 million copies of the game have been sold and it is among the top five most-downloaded paid apps on both Apple (AAPL) and Google (GOOGL) app stores.
The game has proved extremely profitable for Stockholm-based Mojang. The company raked in around $100 million in profits last year. The game is already available on Xbox, Sony Corp.'s (SNE) PlayStation, PCs, home consoles and smartphones.
Within a short time, Minecraft has been successful in building a huge user base of enthusiastic gamers. So much so that users are ready to pay to download the game, unlike other games that are initially offered for free and users are expected to purchase in-game add-ons later.
Minecraft’s Xbox version, PC version and mobile version cost $20, $27 and $7, respectively. In addition, the game is available as a game play video on YouTube and Twitch and has garnered more than a billion views.
Minecraft is not yet available on Windows Phone or Microsoft’s online app store. Microsoft‘s operating system has been struggling to grow market share but remains well behind Apple’s iOS and Google’s Android.
Games are one of the most important revenue generating applications on mobile devices and computers. With the addition of a top title to its gaming portfolio, Microsoft will be able to boost its Xbox business and add attractive content on some of its important platforms. Microsoft’s Xbox One, the latest console, has not done as well as Sony’s latest console PS4. So the move could provide some leverage against Sony.
It could also help the company expand its foothold in PCs and mobile phones by attracting new generation customers. Mojang is developing two more games — Scrolls and Cobalt — which could also generate additional revenues for Microsoft.
Moreover, it would be the first multi-billion dollar acquisition since Satya Nadella took over as the CEO in February, succeeding Steve Ballmer. Microsoft is, however, likely to leave the game open to competing platforms because CEO Nadella plans to generate dollars from a cross platform experience rather than creating a closed ecosystem.
He has been focused on repositioning Microsoft in a cloud-first mobile-first world where Microsoft’s services and technology will be available on a larger number of devices across the existing PC and mobile platforms as well as emerging platforms like wearables and the Internet of Things (IoT).
Microsoft carries a Zacks Rank #3 (Hold).
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