In this segment, we discuss EA’s further move into mobile gaming with their purchase of Playdemic.
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Paul Dawalibi 1:28:11
Um, ea $1.4 billion play demick purchase strengthens its mobile strategy. So EA has been on this tear here. But here they’ve acquired golf, clash creator play demick from Warner media, for 1.4 billion in cash. So they get this free to play golf game on mobile has 80 million downloads over the last four years. They supposedly generated 200 million in revenue last year, and had a profit of $80 million.
What is what is going on here? Jeff with EA and mobile. This is the second big mobile acquisition, right?
Jeff Cohen 1:29:42
Yeah, I think it’s actually maybe even the third The second big one. They also did so they did Glu Mobile for a couple billion. This one. They did one other. You know much smaller they bought, I think a baseball game developer from from Canada. It’s a pretty interesting strategy shift. I mean for the longest Time that, you know EA, even though they had a decent size, mobile division, it always punched way below its weight. And sort of the the industry chatter or the theory on the industry was just the the executives there, particularly the CEO on down like just didn’t really prioritize mobile. And that obviously is changing. I mean, they’ve now allocated almost $5 billion in the last six months to mobile, that’s really significant for 40, whatever they are billion dollar company, that’s, that’s a massive, you know, that that’s like board level
Paul Dawalibi 1:30:35
Jeff Cohen 1:30:36
you know, bet the company almost on a platform. Now, you could argue, you know, they’re doing this five, maybe even 10 years too late. But it’s interesting. So that’s the first reason why I think this this story is interesting. The second maybe even bigger picture of why I think this story is interesting is because the the person who they’re buying it from so they’re buying this asset from Warner Brothers, which obviously was sold from at&t to discovery, and we weren’t
Paul Dawalibi 1:31:07
sure what was going to happen with the assets, right,
Jeff Cohen 1:31:09
that kind of been a will they won’t they for the last I think almost like a year I remember when I was an analyst writing, you know, a story. There was rumors like literally probably about a year ago, almost exactly a year ago at this time that they were going to sell off all the the the video game assets and who would be the best buyer for that. So the fact that now it seems like they’re actually going ahead and doing that sale, it kind of makes you wonder, okay, well, if this was the mobile piece of it, and really was a small piece of it, who’s gonna get you know, the bigger parts of it like the Warner Brothers actual video, interactive studio, and then also I think they have like, Rocksteady and arcane and some other really good, really good assets. So that’s the piece that I think is probably more interesting, maybe to talk about, interestingly enough, I think,
Paul Dawalibi 1:31:54
yeah. What’s the price right here, Jeff?
Jeff Cohen 1:31:57
It’s expensive. I mean, would they say 80 to $80 $80 million
Paul Dawalibi 1:32:01
hates that they paid seven times revenue?
Jeff Cohen 1:32:04
That’s Yeah, no, the price is not right. That like That’s right. Like that’s, that’s a lot. That’s a lot. Uh, you know, for basically one.
William Collis 1:32:14
I also feel like, unlike games publishers, where they’re only few big ones left to acquire, so you might have to pay a premium. I feel like there’s always another top mobile publisher.
Paul Dawalibi 1:32:25
Sure. True, but one at this scale. I mean, 200 million revenue is not like it’s nothing to sneeze at. Maybe in the mobile world. It’s not massive, but it’s not. It’s not an insignificant either. Isn’t does anyone think it’s because they really needed someone to help with battlefield mobile? I know that’s a joke or not, but no, I don’t know. I don’t
Jeff Cohen 1:32:49
know. No, no, but
Paul Dawalibi 1:32:52
it just So does anyone think then this was totally opportunistic Warner, in disarray, these assets sort of out there
Jeff Cohen 1:33:02
when they paid seven times revenue. I don’t know. I don’t know how to describe this. opportunistic. It’s not if they paid 350 million, then yeah, I would say okay, they, you know, they they kind of scooped up an asset. This to me is like you’re paying a premium you’re
Paul Dawalibi 1:33:21
about going head to head on golf. Is it about the golf like against take two’s PGA Tour franchise or whatever? Is it PGA Tour? Yeah,
Jeff Cohen 1:33:30
I think it’s like they made a strategic decision where they have been pushed by investors. Hey, what are you doing in mobile? Why aren’t you doing mobile? Your mobile business has been shrinking the last three years when the the industry is growing 25 30% Plus, and you know, someone up hot, I mean, you know, what’s not? Andrew Wilson, the CEO and the board, basically were like, We are going to build a mobile business.
Paul Dawalibi 1:33:54
But that’s why he bought glue. No, buy make another acquisition.
Jeff Cohen 1:33:58
Yeah, to keep building it. I mean, it does. Yep, that scale, right. That’s like, don’t
Paul Dawalibi 1:34:01
you shut the analysts up? You’re like, Okay, guys, I spent two and a half billion, that’s enough.
Jeff Cohen 1:34:06
I mean, you need scale. They hired a mobile head. And it was I forget the guy’s name, but they hired a really senior mobile guy. This was probably end of last year, then they did the glue acquisition. Now they’re doing this so like, they’re putting their money where their mouth is, I think they probably overpaid. But like the strategy of buying mobile assets is probably a decent one, particularly, I think what they’re doing as they see idfa and all these changes with the mobile ecosystem. And they understand these big like large brands that have kind of broad spectrum are probably what’s gonna win in mobile in the future and maybe they’re making a bet leading into that so it’s probably it’s expensive, but it’s it’s a bold strategic moves, so I applaud it.
Jimmy Baratta 1:34:51
I’m also waiting for like an announcement of some new phrase some new title, right, like some new franchise, because like a lot of these sports games don’t translate well to mobile golf. is great you can set the direction the power the swing, but football on mobile basketball mobile you know the other things EA excels at, you know for for console rather I don’t see it translating here. So I feel like there has to be some under you know, currently developed game or gaming development that there’s going to be a mobile tie over that maybe this this would this will make more sense because yeah, the price doesn’t make sense. And for me you know that this specific game doesn’t make a lot of sense either.
Paul Dawalibi 1:35:29
You guys all don’t like the price to me. Everyone’s everyone says mobile is the future. Seven times revenue doesn’t seem that crazy to me.
Jeff Cohen 1:35:39
Paul prices what you pay value is what you get. Warren Buffett one on one.
Paul Dawalibi 1:35:44
Right? He says strange the market saw this as a negative stock is down since you’d expect it was a discount from at&t, and presumably a good deal.
Jeff Cohen 1:35:55
Well, well, I guess if you assume it was a discount.
Paul Dawalibi 1:36:01
Ramsay agrees with me. This was a good deal.
Jeff Cohen 1:36:03
I’m disagreeing with the premise. What’s the EBIT? Da multiple wasn’t 1.4 billion divided by 80.
Unknown Speaker 1:36:11
Jeff Cohen 1:36:13
I mean, you’re paying 17 and a half times EBIT, da like that’s really expensive.
Paul Dawalibi 1:36:19
So I am clearly there’s some bets on the growth of mobile. I just think what’s weird to me is in the context of idfa, in the context of monetizing mobile, probably becoming more difficult, not less difficult. Paying big multiples right now seems at least not risky is maybe the wrong word, but seems aggressive. What’s that
William Collis 1:36:45
nine years too late? I mean, it does sort of characterize it is it’s an issue. And five years ago,
Paul Dawalibi 1:36:51
maybe or it’s just like, we don’t know yet how the whole idfa thing is really going to shake out. Right. And so, do you pay this multiple two years from now? Probably once it’s all sort of been figured out. I just think there’s a certain amount of uncertainty around mobile monetization right now that I’m surprised that you’re seeing acquisitions happening with that uncertainty.
Jeff Cohen 1:37:17
It’s just like, what Billy’s point is absolutely right. Like they’re five years too late. I mean, five years ago, Activision bought King I think for five, whatever, almost 6 billion, but that was I believe, five times EBIT da You know, this is seven times revenue, so it’s just I don’t know they have a lot of cash so
Paul Dawalibi 1:37:37
Bobby buys right give him any credit Bobby buys right.
Jeff Cohen 1:37:43
shareholders are posed the question to everyone else would you rather than buy this or say hey, we’re gonna try to build the next Apex legends or to apex Legends?
Paul Dawalibi 1:37:53
Or make sure battlefields a really great game for that? Yeah, or just
Jeff Cohen 1:37:58
a million you could build them you could build a heck of a lot of games were 1.4
William Collis 1:38:01
billion that’s like five studios. You could open
Jeff Cohen 1:38:04
that’s like almost a Star Wars like how much was the Star Wars?
Paul Dawalibi 1:38:07
Yeah, we need William Star Wars metric. Star Wars.
William Collis 1:38:12
It’s Star Wars. That’s what it is. Is the Star Wars here. It was the Star Wars. Wow. Sneaking by right that would be my takeaway Disney buys rat.
Paul Dawalibi 1:38:22
Chris says can they compete with golden TMobile? If not yikes on that price? I mean, I’m the wrong person to ask I don’t even I don’t even know golden T Mobile. I don’t I haven’t don’t have one game installed on my phone and never will