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Microsoft to break even on Mojang this fiscal year

By Brendan Sinclair

Microsoft to break even on Mojang this fiscal year

Mon 15 Sep 2014 2:37pm GMT / 10:37am EDT / 7:37am PDT
BusinessFinancial

$2.5 billion acquisition cost expected to be accounted for on a GAAP basis by the end of June, 2015

Microsoft today announced its acquisition of Mojang and the popular Minecraft franchise for $2.5 billion. While that figure beats out some of this year's other massive game industry acquisitions like Twitch ($970 million) and Oculus ($2 billion), it's one Microsoft expects to see a return on in short order.

While Xbox head Phil Spencer didn't get into the financials in his own blog post announcement of the Mojang acquisition, Microsoft's investor relations release not only acknowledged the $2.5 billion price tag, but said it "expects the acquisition to be break-even in FY15 on a GAAP basis." Microsoft's fiscal year 2015 ends June 30, 2015. The acquisition is expected to close late this year.

"Gaming is a top activity spanning devices, from PCs and consoles to tablets and mobile, with billions of hours spent each year," said Microsoft CEO Satya Nadella. "Minecraft is more than a great game franchise - it is an open world platform, driven by a vibrant community we care deeply about, and rich with new opportunities for that community and for Microsoft."

The PC version of Minecraft has been downloaded more than 100 million times since its 2009 debut. Microsoft noted that it is also the most popular online game on Xbox, and the top paid app on both the iOS and Android storefronts in the US. Microsoft has said Minecraft will continue to be available on all platforms for which it has already been released.

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19 Comments

Todd Weidner Founder, Big Daddy Game Studio

499 1,241 2.5
isn't creative accounting grand?...

Posted:A year ago

#1

Brian Lewis Operations Manager, PlayNext

169 118 0.7
I am not seeing how they are going to get a return of 2.5 Billion on this...

Posted:A year ago

#2

Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.

2,510 3,183 1.3
Popular Comment
Just reposting what I said in the other article.

Mojang had $120 million in profit last fiscal year. Even if they doubled that profit, it would need 10 years to make back the investment. I don't see Minecraft making $240 million in profit per year for the next 10 years.

Revenue itself is $300 million. And MS claims to break even by fiscal year 2015?

How is that even possible?

Posted:A year ago

#3

Klaus Preisinger Freelance Writing

1,431 1,767 1.2
Remember last week, when few people were on par concerning the meaning of being on par? This the the same, but this time with the definition of break even and fiscal year 2015.

Posted:A year ago

#4

Todd Weidner Founder, Big Daddy Game Studio

499 1,241 2.5
well there was a time when GAAP used to mean something, unfortunately, those days are now long gone.

Posted:A year ago

#5

Steve Wetz Reviewer/Assistant Editor, Gamer's Glance

213 529 2.5
Their break-even analysis must have been typed on a keyboard with the "0" key stuck down.

EDIT: Okay, read the Polygon article, now it makes sense.

Edited 1 times. Last edit by Steve Wetz on 16th September 2014 2:25pm

Posted:A year ago

#6

Germán Vázquez Executive Producer, Neggi Studio

37 17 0.5
I just saw a few other articles regarding all other revenues for minecraft besides gaming: Licensing for toys, clothes. etc. Could it be that they are counting these additional revenues as part of the break-even?? Even with all of that into account 2.5 billion seems like a lot but you never know I guess.

Posted:A year ago

#7

Ruud Van De Moosdijk VP of Development, Engine Software

52 58 1.1
I would assume that all those additional revenue streams are also counted for Mojang's revenue/profit in the last year that Jim Webb posted here. So with all the game sales and the merchandise licensing Mojang made $120 million. I don't have any doubt Microsoft can up that with the corporate muscle they can put behind it, but by 20 times as much in one year?

Posted:A year ago

#8

Ged McMillan Retail Manager

16 11 0.7
If Mojang and all the Minecraft licensing etc made $2.5bn PROFIT in a year, MS would have had to pay $10-20bn at least, surely.

Edited 1 times. Last edit by Ged McMillan on 15th September 2014 7:13pm

Posted:A year ago

#9

Derek Fitzgerald Director, Quality Assurance, EA Canada

10 17 1.7
I haven't seen the composition of the acquisition deal, but for all those asking questions about how the deal would be accretive so fast for MS, my assumption is a large part of the $2.5B payout may be in stock as opposed to cash. There's also the point that MS is using overseas cash for the deal, which likely would have been written down in their GAAP accounting for the full repatriation tax expenses they would incur if they brought those funds to the US. As they now will not be doing that, MS would gain a significant accounting savings from the deal.

Posted:A year ago

#10

Mbuso Radebe Associate Producer, Smoking Gun Interactive Inc.

57 23 0.4
Popular Comment
For clarity, Microsoft doesn't expect to make back $2.5 billion, but rather break even on a GAAP basis which is closer to $25 million or so.
http://www.polygon.com/2014/9/15/6153497/microsoft-minecraft-2-billion-deal

Edited 1 times. Last edit by Mbuso Radebe on 15th September 2014 8:29pm

Posted:A year ago

#11

Paul Jace Merchandiser

1,170 1,950 1.7
Thanks for that clarification Mbuso. It all makes sense now.

Posted:A year ago

#12
Last year Mojang paid $130M as licensing fees to a separate company owned by Notch. So, the actual profits were around $260MUSD. By this time of the year it´s possibly safe to estimate how 2014 is going to do, so in that sense investing $2,5bn to have a return 10%+ this year rather than a couple percent is starting to make a bit sense. Also, they are hoping for strategic benefits as well.

Maybe they can make $7,2bn Nokia phones acquisition to actually turn profit with the help of Minecraft?

Posted:A year ago

#13

Christopher Garratty Associate Counsel, Activision Blizzard

103 202 2.0
@Mbuso so what MS are saying is that they expect Mojang to make about $25 million next year when it made around $130 million last year?

That went from sounding hugely ambitious to massively pessimistic in no time at all. I mean I'd be astounded if Microsoft could slash Mojang's profitability to 1/5 inside of a year. Especially with all those expensive founder wages presumably walking away on day one. To achieve such a reduction well, they'd have to reduce the number of platforms Minecraft sold on from 5 to like 1... Oh... :)

Posted:A year ago

#14

Andrew Goodchild Studying development, Train2Game

1,288 447 0.3
I think he meant $25M is what they would make in interest, so $130M is paying for itself (assuming no depreciation.)

Edited 3 times. Last edit by Andrew Goodchild on 16th September 2014 1:16pm

Posted:A year ago

#15

Andrew Goodchild Studying development, Train2Game

1,288 447 0.3
It didn't like something in the original text, even when I copy and pasted it. Perhaps because it was a reply. Wrote a shortened version which worked.

Posted:A year ago

#16

Christopher Garratty Associate Counsel, Activision Blizzard

103 202 2.0
I see... well, I don't but I'll just file it under corporate double-speak and get on with my life. :)

Posted:A year ago

#17

Jim Webb Executive Editor/Community Director, E-mpire Ltd. Co.

2,510 3,183 1.3
Thanks, Mbuso.

Seems almost even sillier now.

Of course it should generate more revenue as an investment in Mojang than it would sitting in the bank. But if that was their plan, they should invest the remaining $83.2 billion they have in reserve in various companies just so it will pull in more than bank interest.

Actually, $25 million on a $2.5 billion investment is just 1% annually. Microsoft can't get better than 1% interest from any bank or financial product?

Posted:A year ago

#18

Todd Weidner Founder, Big Daddy Game Studio

499 1,241 2.5
GAAP basis which is closer to $25 million or so.
yeah, that is why I made the comments I did, anyone who understands GAAP, and what it has become understands my inside observations and jokes.

Its nothing but smoke and mirrors these days.

Edited 1 times. Last edit by Todd Weidner on 16th September 2014 3:51pm

Posted:A year ago

#19

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