Sony Activision riposte will involve mobile gaming

Rules of thumb. The object of Nintendo’s 1980s video game “Duck Hunt” is to pick off targets just as they rise above the horizon. The bird-blasting title could offer a template for a Sony mobile gaming acquisition in 2024. Sony is well known as the maker of the PlayStation, which commands almost half the near-$60 billion market for console gaming, according to Ampere Analysis. Its mobile operations are more modest: the Japanese group announced a PlayStation Studios Mobile Division as recently as 2022. Compare that to Microsoft. The software giant has shot from mobile obscurity to superstardom with its $69 billion deal for Activision Blizzard, owner of “Candy Crush”, which recently passed $20 billion in lifetime revenue.

It’s a huge market to aim for. Overall, the mobile segment of gaming, which includes the likes of “Subway Surfers”, raked in about $90 billion in 2023, Newzoo reckons. That’s almost as much as console and PC games combined. But the last two years have been tough. Privacy changes on Apple’s iPhone have made it harder for game makers to target new players with ads, while the casual nature of mobile gamers has made them more likely to switch off amid a cost-of-living crisis. Shares in a basket of mobile gaming companies fell 38%, on average, between the beginning of 2022 and late November 2023. That compares to a 9% fall for the Nasdaq Composite Index.

That could make for some enticing targets as the industry bounces back. TD Cowen analysts said in November that they expected U.S. mobile game in-app purchases to jump 5.8% in 2024 and 6.7% in 2025. Sweden’s Stillfront, which was worth around $600 million in early December and owns over a dozen mobile studios, could be one target. Tokyo-listed GungHo, the $1 billion-plus maker of “Puzzles and Dragons”, is another option. A truly mammoth play would be for Roblox, whose eponymous game had 56 million daily active users in 2022, three-quarters of whom were on mobile. Placing a premium on Roblox’s $20 billion-plus enterprise value puts it well beyond Sony’s $11 billion of cash. But it could also pay in shares, and the Japanese group’s low leverage ratio could give it the option of raising debt as part of a deal – Morningstar analysts predict that net debt will only be half of EBITDA in 2024.

Mobile gaming’s future looks relatively bright. Ongoing lawsuits and EU legislation are attempting to chip away at the 30% cut that Apple and Google take of in-game purchases, potentially boosting the future profitability of those that make the actual games. Mobile gaming also has lower barriers to entry than consoles, meaning it tends to grow faster, especially in the developing world. The sector’s valuation dip in 2022 and 2023 could offer Sony an opportunity to plug in.