GameStop grabbed headlines today when the retailer announced its agreement with online games site Kongregate to acquire the portal. Financial terms of the deal were not disclosed, but Wedbush Morgan Securities analyst Michael Pachter attempted to affix a price tag to the acquisition.
"...we estimate that GameStop paid a multiple of Kongregate revenues, likely 3 – 4x trailing annual revenues. Based upon 10 million unique visitors playing 40 million game sessions per month, we estimate that Kongregate revenues were around $4 – 10 million, implying a purchase price of between $12 – 40 million. At such a price, it is likely that the transaction is immaterial to the company’s results, and that any benefits are longer-term and strategic," he said.
Indeed, it's not likely that Kongregate will have an immediate impact on the games retailer, but GameStop hopes that it'll help the company be more prepared for the digital future. "We view the acquisition of Kongregate as a slight positive for GameStop," said Pachter.
He continued, "The Kongregate acquisition is intended to hasten the transformation of GameStop’s website from a purely e-commerce site to a gaming platform. GameStop is attempting to become the largest aggregator of digital games through a multi-channel digital platform. Although Kongregate will keep its own URL and business, its website will be fully integrated with GameStop’s, allowing for cross-promotion of games, expansion of the company’s affinity program, and increased interaction with GameStop customers."
2 Comments
July 27, 2010
A smart move by GameStop. As digital distribution continues to grow rapidly, traditional sales will probably lose ground. GameStop has a limited window to establish itself as a digital portal, and this is a good step in that direction. Smart integration of digital sales and GameStop's physical presence should be a winning combination. That's the tricky part, though; GameStop will have to take two very different businesses and make them work well together.
July 27, 2010
The number I heard was $60M, with $10M of that as earnout. Good outcome for Kongregate, makes sense for GameStop.