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Analysts give Tencent-Supercell thumbs up

Tencent's acquisition of Supercell will see the Chinese gaming giant purchase up to 84 percent of the Clash of Clans developer for as much as $8.6 billion. You could stack that up against the amounts various companies paid to acquire Minecraft-maker Mojang, Oculus, Twitch, and 51 percent of Supercell in 2013, and still have more than $1 billion left over. You could take Activision's massive $5.9 billion acquisition of King and any one of those previous transactions, and still come in under $8.6 billion.

So Tencent clearly paid a mint for Supercell. But is Supercell worth it? There's reason to believe so, judging by notes sent out separately today by the heads of research firms Newzoo and Superdata, as well as tech M&A advisor Digi-Capital.

"This is certainly a good deal for Tencent," Newzoo CEO Peter Warman said. "It solves a huge strategic problem and provides immediate additional revenue potential. This year, Supercell is on track to make over $2 billion outside of Asia. This is significantly more than the $1.3 billion Tencent made outside of Asia last year, the majority of which came from League of Legends. Tencent will now finally make serious mobile revenues outside of its home turf.

"The immediate opportunity comes from the Android ecosystem in China, representing around two-thirds of the Chinese mobile market. Clash Royale is one of the best performing games on iOS in China and has just recently launched on Android in the third-biggest store in China: 360 Mobile Assistant. Tencent's MyApp store is the biggest. Though it is not written in stone yet that Kunlun will no longer publish Supercell games, it seems obvious that Tencent will take over. Using Tencent's store and QQ community represents an immediate $1 billion+ opportunity for Supercell's portfolio in China, particularly Clash Royale."

Meanwhile, Superdata CEO Joost van Dreunen said the move was a continuation of Tencent's strategy to acquire controlling stakes in developers like Epic Games and Riot Games. He also underscored the timing of the deal in light of the shifting mobile industry trends.

"It is comparable to the King acquisition by Activision Blizzard, and comes at an opportune time: the market for mobile and online gaming is saturating and, unsurprisingly, has begun to consolidate," van Dreunen said. "Digitalization has triggered the evolution of the games industry into a worldwide market governed by titans. The repeated success of Supercell makes it a perfect asset in the Tencent empire."

Digi-Capital CEO Tim Merel also thought the move made a certain amount of sense given the mobile market's projected growth.

"[W]e forecast mobile games growth of 8.1% CAGR to reach $48 billion by 2020, MMO/MOBA games growth to $30B by 2020 at only 5.2% CAGR, with standalone console/PC games software declining to $21 billion by 2020 at -3.8% CAGR," Merel said. "So it makes as much sense for Tencent to buy Supercell as for Activision-Blizzard to buy King Digital. In each case the buyer is rebalancing their business with more exposure to the largest of the games growth markets. That said, the highest growth markets from a small base are VR/AR games to $10 billion by 2020, plus eSports at a smaller scale. More large scale consolidation could follow."

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