Microsoft 'Doubles Down' On Gaming With 'Minecraft' Purchase

Microsoft MSFT has agreed to acquire Mojang, the company behind the popular "Minecraft" franchise, for $2.5 billion. The deal was confirmed when Mojang published a blog entitled, "Yes, we're being bought by Microsoft." "I think it makes sense for them to double down on gaming," Evercore Partners analyst Kirk Materne told Benzinga. "I think that's a scenario where they actually have some momentum in the consumer markets so to buy a franchise that has a pretty good following makes sense. [It] sort of dovetails on what Satya [Nadella] was talking about earlier this year in his letter to employees about how Xbox fits in." BTIG analyst Walter Piecyk told Benzinga that "given the amount of time that my kids spend on that product, it certainly seems like an interesting pickup." "Minecraft seems to be a very popular product," Piecyk added. "[Considering] what was paid for Twitch, obviously these guys are doing something interesting, and it's been sustainable from what I can tell."

Related Link: Microsoft Layoffs Won't Derail Its 'Aggressive' Strategy Against Apple

Big Spender

Microsoft is not one to shy away from big acquisitions. The company famously spent $8.5 billion to acquire Skype a few years ago. In 2013, Microsoft announced that it would acquire Nokia's handset business for $7.2 billion. Materne said that while the Mojang acquisition is pricey, the $2.5 billion fee is "easily digestible" considering how much cash the company has on its balance sheet. "I think it's a pretty reasonable risk/reward," Materne added. "If it goes wrong and for some reason the momentum behind the business doesn't keep up, it's not a huge bet on their part. But there's a lot of upside optionality in terms of taking that franchise and bringing it within the Xbox brand and maybe doing some things with it across some of their first-party mobile devices."

Related Link: 3 Companies That Should Grab Xbox Entertainment Studios

Slice Of The Pie

Tech industry expert and analyst Jeff Kagan referred to the Mojang acquisition as one slice in Microsoft's massive pie. "Part of Microsoft's reality is a gaming business," Kagan told Benzinga. "If this will help them grow and continue to grow one more slice of their pie, then it'll be good. They've grown in this space and I expect them to continue growing in this space."

Recouping The Investment

Materne isn't worried about how long it will take Microsoft to recoup its investment. "I think the bigger question is, 'Can Mojang help them build a broader halo around Xbox, around Windows Mobile?'" said Materne. "I think it's really about, 'Can it help Microsoft gain some momentum in the mobile and gaming markets?'" Materne said that he doubts Microsoft is concerned about getting a huge paycheck in the next 24 months. "I think it has more to do with, 'How does Mojang make the Xbox that much more valuable, and how does Mojang make us that much more impactful in mobile potentially going forward?'" Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.