Hasbro's decision to invest $112 million for a 70% stake in Backflip Studios is being applauded by the market. Shares of the second-largest toy maker opened higher on the news. Investors seem to have forgotten that the last time that a publicly traded company spent nine figures on a mobile gaming company was Zynga's ill-advised $210 million purchase of OMGPOP last year.
Buying the parent company of Draw Something didn't pan out well for Zynga. It had to write off nearly half of its acquisition price a few months later. One would expect that the next notable deal in casual and social gaming would be greeted with brutal skepticism, but then Xbox chief Don Mattrick decided to leave Mr. Softy to become Zynga's new CEO.
If the Xbox boss is leaving the country's leading console platform to hop on a social gaming company that was dogged by declining bookings and defecting executives, surely this must be a sign that mobile gaming has bottomed.
The market seems to think so. Shares of Zynga soared 23% last week on Mattrick's move. Even Glu Mobile (NASDAQ:GLUU) -- another publicly traded mobile gaming player -- popped 15% higher on the week.
Glu did introduce a new game during the week, but let's not kid ourselves here. Glu moved higher because Mattrick's move validates Zynga's realm of free-to-play games that are easy to download through the growing base of active smartphones, tablets, and media players.
I'm not suggesting that Hasbro wasn't courting Backflip before Mattrick's arrival at Zynga. However, one simple appointment probably helped seal the deal. Buying a mobile gaming company is suddenly fashionably acceptable on Wall Street. If anything, the deal may have rushed Hasbro into completing the terms to avoid having to pay even more. After all, if Zynga and Glu saw their market values increase sharply last week, what does this mean for the countless privately held app makers?
Zynga and Hasbro have helped each other before. The two companies teamed up last year to put out Zynga properties as real-world Hasbro board games. They obviously didn't work together this time, but it would be hard to picture Hasbro being praised for snapping up a majority stake in the company behind the Paper Toss franchise if Zynga hadn't made casual gaming cool again a week earlier.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Hasbro. The Motley Fool owns shares of Hasbro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.