5 reasons why Electronic Arts buys Glu Mobile

On the heels of a $ 1.2 billion deal to buy a UK-based company Codemasters (announced at the end of 2020), Electronic arts (NASDAQ: EA) is in the process of recruiting one of the world’s leading mobile game developers.

Here are five charts that illustrate why Electronic Arts spends $ 2.1 billion to buy Glu Mobile (NASDAQ: GLUU).

1. Accelerate mobile growth

Over the past decade, EA has used acquisitions to build a diverse mobile portfolio, which currently accounts for 13% of total bookings. It contains dozens of mobile titles including older hits like Plants vs. Zombies alongside mobile versions of EA Sports titles such as FIFA Mobile.

Image source: Getty Images.

However, EA’s mobile business has struggled to grow in recent years. Mobile bookings, excluding license revenues, fell 10% in fiscal 2020, following a 13% drop the previous year.

The mobile segment has performed well over the past year with strong results from Star Wars: Galaxy of Heroes and FIFA Mobile, but as a group, EA’s mobile games are underperforming in a market that is experiencing high double-digit growth.

Meanwhile, Glu Mobile is fast becoming one of the leading producers of mobile games, thanks to the good results of its three main franchises. Design house, Tap Sports Baseball, and covet fashion. Glu expects total bookings to reach between $ 555 million and $ 560 million in fiscal 2020, while adjusted operating profit (measured by EBITDA) also continues to climb.

A bar graph showing the growth history of Glu Mobile.

Image source: Glu Mobile Q3 2020 results presentation.

With the addition of Glu Mobile, EA will have a significant and growing mobile business generating $ 1.32 billion in bookings. This includes over 100 million monthly mobile gamers, bringing EA’s global reach across consoles, computers and mobile platforms to 430 million gamers. Glu Mobile can leverage EA’s marketing capabilities to expand its franchises globally and grow even further.

2. Glu brings consistency

There are many synergies between these two game producers. The Glu Mobile team, led by former Electronic Arts veteran Nick Earl, have proven to be very adept at creating, testing, and launching titles across many genres, including RPG, sports, and games. lifestyle games.

EA’s specialty is making sports games under its EA Sports label, but Glu Mobile has also proven that it can consistently develop a mobile sports franchise. Tap Sports Baseball has been a success for the company, growing from approximately $ 4 million in bookings in 2014 to over $ 90 million in 2019.

A bar graph showing the record bookings growth with Tap Sports Baseball.

Image source: Glu Mobile Q4 2019 results presentation.

The EA Sports and Glu Sports teams can obviously share ideas for further improvement in what they are already doing so well.

3. A vast pipeline of new games

The development pipeline at Glu Mobile looks very promising. It has new titles expected to launch soon, including Sport Fishing Tap, Deer hunter world, and an updated version of Tap Sports Baseball for the 2021 season. EA plans to bring Press Baseball to new countries thanks to its expertise in EA Sports licensing.

There is also Table & Taste, a new lifestyle game, in addition to a line of hyper-casual games released by Glu’s Crowdstar studio.

A graph showing the new Glu Mobile games released in 2021.

Image source: Glu Mobile Q3 2020 results presentation.

Additionally, Glu Mobile could bring some new ideas to EA on how to monetize certain titles. For example, Glu recently relaunched an e-commerce store at Design house, making it the first game company to try this unique angle of in-game monetization. The company said it saw the first positive results from this initiative during the latest earnings call.

4. Growth at a fair price

It’s always worth checking the price a company pays when announcing a major acquisition. Like Warren Buffett said, “The price is what you pay, the value is what you get. Through three popular valuation metrics, Glu Mobile looks like a good value for money in the video game industry.

EA pays Glu Mobile shareholders $ 12.50 per share in cash, bringing their price / free cash flow multiple to 47.

Based on the futures price / earnings ratio, Glu is trading at a multiple of 25, which looks like a relatively good deal compared to its larger counterpart. Zynga, which is trading at a higher futures P / E of 28.

Glu is also a better deal based on selling price with a multiple of just under four, while Zynga is trading at nearly six times sales, up there with the best in the business. video game actions.

GLUU PS Report Graph

Data by YCharts.

5. EA has money to spare

EA entered the 2021 schedule with a lot of money to reinvest or acquire top-notch studios like Glu to expand its dominance in the games market.

The company has generated $ 1.9 billion in free cash flow over the past four quarters. This is in addition to the $ 6.7 billion in cash and short-term investments on the balance sheet at the end of 2020.

EA Free Cash Flow Statement

Data by YCharts.

The Codemasters deal is expected to close this month, while Glu Mobile is expected to close in the quarter ending in June. Even after these two deals go through, EA will still have a few billion dollars in cash on the balance sheet with nearly $ 2 billion in free cash flow each year.

The addition of Glu Mobile will boost EA’s growth in a mobile market that grew by around 25% last year, reaching $ 86 billion in global revenue, according to Newzoo.

In short, this acquisition is a major upgrade for Electronic Arts’ mobile gaming business, which is why the title has reached a new high in the news.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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