Does This Mobile Game Acquisition Make Sense?

William is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

On July 8, toy maker Hasbro (NASDAQ: HAS) announced the acquisition of a 70% stake in privately held mobile game company Backflip Studios. You may ask: Why would a toy company that owns some of the most rock solid iconic brands from G.I. Joe to Transformers want to buy a company operating in an unproven industry such as mobile gaming? That’s a good question. Let’s examine….

Fickle market

You’re right in the fact that mobile gaming lies in unproven frontier territory. Moreover, mobile gaming represents a luxury that people can live without paying for. Mobile gaming company Zynga (NASDAQ: ZNGA) provides evidence of this fact.

Zynga experienced a decline in revenue of 18% along with a 30% decline in monthly unique players in its most recent quarter. The company decided to bring in a new CEO, Don Mattrick from Microsoft to try and straighten things out.

A number of people believe that mobile gaming represents the future of video gaming altogether. Video game maker Electronic Arts (NASDAQ: EA) showed losses from 2009 to 2011 and showed profit margins of less than 3% for fiscal years 2012 and 2013. However, the company showed “significant” increases in internet and mobile derived products to the tune of 24%.

Skills and marketing acquisition

Recently, Hasbro entered into an agreement with Electronic Arts to develop mobile games for popular traditional board games such as Monopoly, Scrabble, and Battleship. However, this leaves Hasbro out in the cold when it comes to the intricacies of developing games pertaining to its other brands.

Hasbro’s subsequent acquisition of Backflip Studios represents an effort on its part to gain skills in an area that could prove useful in moving forward with its brand blueprint. This gives the company greater control in the areas of utilizing mobile gaming to advance its branding initiatives and improving the chances of adding value to its brands. In addition, Hasbro has inherited a new set of popular mobile gaming brands.

The financials weren’t disclosed but Hasbro had this to say about Backflip, “Backflip Studios has become one of the fastest growing and most profitable mobile game studios with more than 300 million downloads of its popular games.” This gives indication that Backflip’s financials lay on more solid footing.

The future of toys

Hasbro probably appreciates the increased competition on a child’s attention in this age of the smartphone and mobile computers such as the iPad. If it could develop mobile games based on iconic brands such as Transformers, My Little Pony, and G.I. Joe then it could gain more attention for the toys its sells.

Some pundits argue that the toy industry experienced slowing sales due to the popularity of tablets. However, as long as the popularity of movies based on the toys such as Transformers holds up, then toys will remain relevant.

Foolish takeaway

Look for Hasbro to develop more mobile games based on its major core brands: Transformers, G.I. Joe, My Little Pony, and Magic: The Gathering. Moreover, expect Hasbro to leverage the popularity of Backflip’s games portfolio such as DragonVale, NinJump, and Paper Toss. Maybe you could see toys based on those titles. From a skills and marketing standpoint this acquisition actually makes sense.

Tax increases that took effect at the beginning of 2013 affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "How You Can Fight Back Against Higher Taxes," the Motley Fool's tax experts run through what to watch out for in doing your tax planning this year. With its concrete advice on how to cut taxes for decades to come, you won't want to miss out. Click here to get your copy today -- it's absolutely free.


William Bias has no position in any stocks mentioned. The Motley Fool recommends Hasbro. The Motley Fool owns shares of Hasbro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus