Alibaba Group Holding Ltd. is backing another California
startup, announcing a $120 million strategic investment in gaming
company Kabam Inc. and a partnership to publish and distribute its
free-to-play mobile games.
The deal, which values San Francisco-based Kabam at more than $1
billion, comes after The Wall Street Journal reported Alibaba had
held talks regarding a financing round for Snapchat Inc. that would
have valued the mobile messaging startup at $10 billion. It also
marks Alibaba's latest push to reach more users before its coming
IPO.
The strategic infusion into Kabam is akin to recent moves by
Chinese tech giants, including Baidu Inc. and Tencent Holdings
Ltd., to establish a foothold in new geographies by investing in
tech startups. Alibaba has invested in nearly two dozen companies
in recent years, specializing in everything from the delivery of
large appliances to social networks and soccer clubs.
Since launching its investment group in Silicon Valley in
October, Alibaba has bankrolled at least 10 startups, including
mobile deep-linking company Quixey Inc., mobile messaging platform
TangoMe Inc., transportation app Lyft Inc., smartphone
remote-control company Peel Technologies Inc. and now Kabam.
With users in more than 150 countries playing its three dozen
games, Kabam represents a way for Alibaba to reach people through
play. Although Alibaba has offered mobile games on its Taobao
marketplace app and its Laiwang messaging service since January,
joining with Kabam marks a major push into a sector that has long
been a sweet spot for competitors. For example, Tencent has
invested $231 million in Riot Games Inc., $330 million in Epic
Games Inc. and an undisclosed amount in Activision Blizzard Inc. to
bring games to its users.
For Kabam, which has 70% of its users on mobile and is tracking
to do more than $550 million in revenue this year, Alibaba provides
a much-needed publishing and distribution platform in its target
market.
"Asia is 50% of the gaming market. It is a strategic priority
for us," Kabam Chief Operating Officer Kent Wakeford said, adding
that Kabam talked to Baidu, Tencent and "every major player in
China" before selecting Alibaba as a strategic investor.
"It was a very competitive process," he said.
The arrangement also includes a commitment by Kabam to launch 10
games during the next three years through Alibaba, starting with
one based on the "Lord of the Rings" that is now in
development.
The other games will be a mixture of existing titles that could
include top-grossing games "Kingdoms of Camelot" and "Dragons of
Atlantis," along with new ones that may come from studios Kabam
intends to acquire.
Much of the $120 million investment will be used to purchase
what Mr. Wakefield described as a string of "transformational"
acquisitions in Asia and other regions. He said Kabam is in active
discussions with several companies now, but hasn't completed
anything.
The investment brings total outside funding for the profitable
eight-year-old company to $240 million. The cash and the Alibaba
connection are designed to help it further diversify by geography
and content and distinguish itself from free-to-play gaming
companies Zynga Inc. and King Digital Entertainment PLC, which have
struggled to wow investors since going public.
The funding could also help set a benchmark valuation for when
Kabam goes public, which Kabam Chief Executive Kevin Chou
previously told VentureWire could happen in November, around the
time it plans to launch a game based on the "Hunger Games"
franchise.
Mr. Wakefield declined Thursday to comment on the timing of an
IPO.
Through a spokesperson, Alibaba declined to comment on the Kabam
investment, citing SEC regulations governing companies in
registration to go public.
Previous venture investors in Kabam include Canaan Partners,
Redpoint Ventures, Intel Capital, Pinnacle Ventures and Google
Ventures.
Write to Lizette Chapman at lizette.chapman@wsj.com