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Compared to Supercell, Microsoft paid 100 percent too much for Minecraft, says analyst

Digi-Capital crunches the numbers

Compared to Supercell, Microsoft paid 100 percent too much for Minecraft, says analyst

It seems everyone has an opinion about the Microsoft-Minecraft deal.

For many of us mere mortals, we're perhaps overly focused on the sheer scale of the deal - $2.5 billion.

But this is small beer for a company with short term assets worth $86 billion.

Market analysts can look past the dollar amounts, however, instead comparing the dollars spent to similar deals and hence getting a more nuanced view on whether Microsoft has done well.

Buyer beware

Digi-Capital is one such outfit.

It's compared the valuation of Mojang in 2013 (the last year for which official numbers are available) to three other giants of the mobile games scene.

On that basis, Microsoft has paid more than would be expected - much more.

Comparing the $2.5 billion price tag to Mojang's sales, the deal value is 8 times sales, that almost three times more expensive than GungHo, Supercell or King's valuations.

With the Mojang deal, Microsoft has got less bang for each buck compared to other mobile company valuations

On a profit basis, the deal looks even more expensive: double GungHo's and Supercell's valuation based on profits, and triple that of King.

Of course, Microsoft could argue that apart from the case of Supercell - which was bought by GungHo and SoftBank) these are not strictly comparable valuations as GungHo and King's valuations are based on their stock market value; not the same valuation process as single buyer would generate.

It will also argue that Minecraft isn't a typical game, with potential to become a global creativity tool.

Start of the process

Yet there is more bad news for Microsoft.

Digi-Capital points out further issues with the deal; notably that Mojang's executives, including Minecraft creator Notch, are leaving, and that there are only limited short term synergies between Minecraft and Microsoft's broader business.

After all, Minecraft is a one-time paid experience that over 50 million people have already paid for.

On that basis, the deal can only be described as a strategic one - "a bold long term strategic move for Microsoft's future cloud, mobile, virtual reality and wearables platforms".

And there are still risks - notably Microsoft ability to "nurture that community and migrate them to future platforms".

"Keep users happy and Mojang could be a great deal. Upset them, and the building blocks might fall away," Digi-Capital warns.

You can find out more about Digi-Capital via its website. 

Contributing Editor

A Pocket Gamer co-founder, Jon is Contributing Editor at which means he acts like a slightly confused uncle who's forgotten where he's left his glasses. As well as letters and cameras, he likes imaginary numbers and legumes.