The Acquisition of Supercell: Tencent Rising

What would the mobile world be like without Supercell, the creator of Clash of Clans & Clash Royale? The mobile industry has turned into a Game of Thrones, it was only a matter of time. The Wall Street Journal reports that Tencent, a Chinese investment holding company whose subsidiaries provide media entertainment and technological services, is trying to acquire Supercell by paying $9 billion to Softbank Group. SoftBank, the parent company of GungHo, has spent $2.1 billion for 51% stake in Supercell back in 2013. Of course, Supercell’s value has dramatically increased within the last 3 years considering that its games are one of the most played in the whole industry.

Although Tencent is very influential in China, its global influence will increase after the Supercell acquisition. However, there are concerns that Tencent might not get back its investment for at least 12 years due to a concerning development with Supercell’s daily revenue. Supercell used to be the King of the App Store, enjoying its throne with Clash of Clans being the top grossing app worldwide. Now, Clash of Clans is at #3, with Clash Royale at #5. The Iron Throne has been taken by Machine Zone, with two of their games, Game of War: Fire Age becoming #1 and Mobile Strike as #2. Both games may have different publishers, but both are the products of Machine Zone. Therefore, should Tencent be concerned that Supercell games are not the top grossing apps that they used to be? Absolutely, especially with an investment of $9 billion.

Still, acquiring Supercell would not only make Tencent a major player in the global mobile industry, but will also open other opportunities for them. One interesting question arises, ”Why would SoftBank Group be mad enough to sell their Supercell stake to Tencent?” They wouldn’t if they didn’t need to, but SoftBank is currently in a more than $80 billion in net debt and they have no choice but to balance the sheet. Interestingly, Supercell was valued at $5.25 billion last year and this year valued at $9 billion. The major increase in value is due to the increase in revenue from virtual currencies that Supercell implements in its games, such as in-app purchases. Not all games can become that valuable with a freemium system; it requires a devout fan base and a competitive nature. Supercell designs games to last for years and this results in a long-term retention of players.

The mobile world is about to change form, with two big competitors leading it. The upcoming struggle will be between Machine Zone and Tencent. Both companies are on the rise and they are very aware of what the other is doing. For now, we will keep a close eye at the acquisition of Supercell and analyze the impact it will have on the mobile gaming world. Supercell, Tencent, and SoftBank refused to comment on the acquisition.