Kabam joins the $1 billion club after Alibaba investment. Can it avoid the fate of Zynga?

We should rename this week Alibaba Week, because the Chinese e-commerce giant is on a U.S. investment roll. First, news leaked that Alibaba is negotiating a Snapchat investment deal that would value the messaging company at $10 billion. Now, Alibaba has led a $120 million Series E deal in social gaming company Kabam that would value it at north of $1 billion. It’s no Snapchat or Uber number, but the $1 billion valuation club still holds some cache.
Kabam, the lesser known stepsister of Zynga, is responsible for gaming hits like Kingdoms of Camelot and The Hobbit: Kingdoms of Middle-earth. Have no idea what those are? You aren’t alone. They’re for the hardcore multiplayer users — the real gaming geeks and freaks.
Kabam has managed to bring in $360 million in revenue for itself in 2013 with its in-app monetization strategy, double its revenue from 2012. The company said that four of its biggest hits — Kingdoms of Camelot (mobile and desktop), Dragons of Atlantis and The Hobbit – have generated $100 million apiece.
When asked by Gigaom whether Kabam has been eyeing an IPO, COO Kent Wakeford deferred and started talking about how the company would spend Alibaba’s money. When questioned again he hedged, “We continue to at the board level have discussions about an IPO and are constantly valuing the markets.”
It’s no wonder the company might be a little gun shy to admit such ambitions. Its fellow gaming competitors have not fared so well on the public markets, with Candy Crush’s King debuting to a disappointing IPO in March, and Zynga losing half of its value since going public for $7 billion in 2011.
Gamers are fickle, and building a long-term sustainable gaming company is no easy feat. The boom-bust cycle of chasing the next hot game, whether Farmville or Candy Crush, have weakened much bigger giants than Kabam. Few have mastered the craft. Wakeford said that Kabam’s strategy is to diversify across three spectrums: geography, game portfolio, and platform.
The Alibaba partnership will help the company with the former, by expanding further into the Chinese market. “Asia represents 50 percent of the worldwide gaming platform,” Wakeford said. “We looked at it and said, ‘Here’s a tremendous opportunity for us as a company.’” Kabam’s Beijing office already has 350 employees. Co-founder Michael Li is based there and two of the company’s biggest games — The Hobbit and Kingdoms of Camelot — were built in China.
“The market in China is very different from the rest of the world,” Wakeford said, pointing to both cultural differences and fragmented sales channels, app stores, and regulations. “[With Alibaba] there’s a commercial partnership where they’ll be distributing a number of our games in China.”