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Alibaba Ups Video Game Presence With Kabam Investment

Tickers in this article: GLUU GOOG TTWO

NEW YORK ( The Deal ) -- Alibaba Group Holding's $120 million investment in Kabam underscores the value of video games in e-commerce and other sectors.

Kabam had $360 million in 2013 sales from purchases that players make within its free games such as "Kingdoms of Camelot," "The Hobbit: Kingdoms of Middle-Earth" and "Fast & Furious 6: The Game." Sales last year doubled from 2012.

Alibaba plans to market the fast-growing company's games alongside its mobile applications in China, reflecting the increasingly global nature of the games business.

Kabam's new funding aside, VC investments in games has lagged behind M&A, which has been even hotter.

Mobile, gaming and digital boutique firm Digi-Capital Ltd. reported that games acquisitions came to $6.6 billion in the first half of 2014, doubling the rate from late year. Investment by VC's or companies, by which new shares are issued and new money comes into the target company, came to $427 million. Exits by game backers and founders came to 14 times the value of investments in the sector over the period.

"While there is clearly a substantial holding time lag for realizing any investment, this could present a potential opportunity for investors," Digi-Capital Managing Director Tim Merel wrote in an email. "It's also a challenge for early stage games companies trying to raise funds."

From the last half of 2013 through the first half of this year, mobile gaming was the hottest sector, with $4.6 billion out of a total of $12.5 billion in gaming M&A over the period. Mobile deals included Zynga Inc.'s $527 million purchase of mobile gaming company NaturalMotion. In July, mobile gamer Glu Mobile agreed to pay $100 million for Cie Games, which created the popular Racing Rivals.

Google's pursuit of Twitch Interactive Inc. indicates the appeal of games technology, which Digit-Capital reports had $2.8 billion worth of M&A in the latter half of 2013 and the first half of 2014. Twitch streams broadcasts of games alongside video of the gamers themselves. The company has raised funds from Thrive Capital, WestSummit Capital, Take-Two Interactive Software , Alsop Louie Partners and Bessemer Venture Partners.

Google and Twitch would not comment on a deal, which has been reported.

"Google is trying to do a lot more with Google Play, and gaming seems to be a very big component of Google Play these days," said CRT Capital Group analyst Neil Doshi. Twitch would presumably help lure gamers to Google's online gaming marketplace.

Twitch has "extremely high engagement rates" among a young, male, fairly affluent audience, according to SNL Kagan analyst Seth Shafer. "Any media company (new media or old media) that's concerned with targeting millennials and/or cord cutters would be envious of the dedicated audience that Twitch has built up," he wrote in an email.