(Reuters) – Alibaba Group Holding Ltd (IPO-BABA.N) has invested $120 million in San Francisco-based mobile games studio Kabam, the latest in a string of U.S. investments intended to build up the Chinese online retailer’s presence in the world’s biggest Internet arena.
The investment raises the valuation of Kabam from $700 million to more than $1 billion. As part of the partnership, Kabam will take games from “The Hobbit: Kingdoms of the Middle-earth” to “Fast & Furious 6: The Game” to users of Alibaba’s messaging app Laiwang and e-commerce service Taobao, the companies said. First up will be Kabam’s “The Lord of the Rings” game.
Alibaba, which will make its highly anticipated Wall Street debut this year, has grown its pool of U.S. investments in content, e-commerce and social media during the past 18 months. It has built an M&A scouting team in this country and forged ties in Silicon Valley.
The Kabam deal follows Alibaba’s investments in messaging app Tango, which also offers games and music; Amazon.com rival Shoprunner; niche e-tailer 11 Main; even a deal to stream Lionsgate movies and TV programs back to China. On Wednesday, Bloomberg reported that Alibaba is in funding talks with ephemeral photo-messaging app Snapchat, taking that fast-growing startup’s valuation to some $10 billion.
Kabam Chief Operating Officer Kent Wakeford said in an interview this week that his company initiated talks with Alibaba.
Chief Executive Officer Kevin Chou and Wakeford, who had been on the lookout for a partner to help distribute Kabam’s games in China, made several trips to the Asian country over the past six months to meet Alibaba executives, he added.
“We have talked to all of the major companies in China and we found that there was a very good cultural fit between the management of Alibaba and Kabam,” Wakeford said. “We also appreciated their vision of where they wanted to go from a gaming perspective, and how they wanted to leverage all of their resources within China to create a very big foothold for gaming in that market.”
Alibaba will also take a seat on Kabam’s board of directors, Wakeford said.
Alibaba has cemented its spot as the top online retailer in China but has struggled to grow its business on mobile devices. The company launched its own mobile game service in January, hoping to keep mobile users engaged as shopping migrates to smartphones and tablets from personal computers.
Chinese rival Tencent is currently dominant in mobile games and is muscling onto Alibaba’s e-commerce turf. Shenzhen-based Tencent makes the majority of its revenue from the sale of games and in-game virtual goods via mobile apps like messaging service WeChat.
“It’s hard for me to speak to (Alibaba’s) strategy, direction or priorities. We do know that gaming is a very large market in China and they have one of the largest consumer reaches within China,” Wakeford added. “To be able to augment that with gaming revenue and great games can be significant to Alibaba.”
(Reporting by Malathi Nayak; Editing by David Gregorio)