Video game bellwether
Electronic Arts Inc.
) unit PopCap Games has downsized its workforce by roughly 12% in
the North American region. EA had acquired the latter in July 2011.
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According to Reuters, approximately 50 out of 380 employees from
the Seattle and Vancouver studios have been laid off. Further,
PopCap is looking into the feasibility of running its Dublin
studio, which has a workforce of 90 employees.
EA had acquired PopCap Games to compete with
) and expand in the rapidly evolving social and mobile gaming
segments. The deal was valued at $1.3 billion, of which $650
million was paid in cash and $100 million in new shares. The
remaining $550 million was subject to certain performance
EA's decision to restructure PopCap Games comes at a time when the
company is witnessing a decline in its revenues and reporting
losses on a year-over-year basis. In the last concluded quarter,
EA's loss widened from the year-ago quarter due to higher operating
costs. This is particularly painful in the video games market
where retail sales have declined for eight straight months.
Moreover, management believes that the social gaming space remains
challenging because of limited visibility in monetization
opportunities. Since most of the digital and online games are
free-to-play, gaming companies remain overly dependent on
advertising revenues and online sales of in-game virtual items.
Therefore, in the current situation, the company's decision to
realign costs in order to gain operational efficiency is a
However, EA's strong digital portfolio and continuing growth in the
free-to-play and online segments are expected to drive top-line
growth over the long term. Moreover, we are encouraged by EA's
financial outlook for the second quarter, which is supported
by games from some of the most popular franchises lined up
for release in the second half of this fiscal year.
However, tough competition from
Activision Blizzard Inc.
), Zynga Inc. and
Take-Two Interactive Software Inc.
) is a headwind going forward. Moreover, we believe that EA is
challenged by the limited number of new games. We believe that this
is going to negatively impact EA's measures to boost its online
subscriber base, which will impact its revenue growth.
We remain Neutral over the long term (6-12 months). Currently, EA
has a Zacks #3 Rank, which implies a Hold rating over the short
term (1-3 months).