Another Reason for Gamers to Worry

Electronic Arts (Nasdaq: EA  ) is in the game -- but it may be a game of denial.

The country's second-largest video game company moved to squash rumors that it was in the process of laying off between 500 and 1,000 employees yesterday.

"We're growing and we're looking to hire hundreds of people for our digital, console, mobile and social games," a company spokesman is telling Reuters, eventually pointing out that EA expects to grow its overall head count this year.

However, the subsequent edits to the original Reuters article -- where claims that EA "denies" the layoff chatter was changed to "dismisses" and a reference to "restructuring" at EA was corrected to "reshuffling" -- are just as telling.

If EA is "reshuffling" its workforce, it's a sign that traditional games aren't panning out the way the industry -- after three rough years -- was hoping.

Of course EA wants more skin in mobile and social. It's a booming market, and even market leader Zynga (Nasdaq: ZNGA  ) has indicated that it plans to continue making strategic acquisitions after last month's pricey deal for OMGPOP. When Vringo (AMEX: VRNG  ) -- a tiny social app developer with a mere $718,000 in profitless revenue last year -- has seen its stock more than quadruple this year, the speculative fervor and rich valuations are going to be hard to resist.

Whether EA is "reshuffling" or not, many of the faces of traditional gaming are taking steps back.

Larger rival Activision Blizzard (Nasdaq: ATVI  ) laid off 600 of its employees at Blizzard Entertainment as the company copes with a consistent decline in World of Warcraft players. GameStop (NYSE: GME  ) plans to close 50 more stores than it opens this year.

EA and GameStop have been aggressively fortifying their digital initiatives, but it remains to be seen if the low prices and flimsy moats of the app realm will ever translate into the material profitability that the companies feasted on in the past.

Euphemisms and spin aside, the video game industry isn't getting any better.

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The Motley Fool owns shares of GameStop. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard. Motley Fool newsletter services have also recommended writing covered calls on GameStop and creating a synthetic long position in Activision Blizzard. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (3) | Recommend This Article (4)

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  • Report this Comment On April 17, 2012, at 12:32 PM, Celidus wrote:

    EA is single handedly destroying video gaming. Their business practices are reprehensible and the way they treat their customers is too. EA's only concern is how much money they can wring out of an IP before they bleed it dry and shut it down. No wonder they're the "Worst Company in America"!

  • Report this Comment On April 17, 2012, at 3:49 PM, nickl5 wrote:

    The reason VRNG is upare the patents

    ________________

    “Vringo, Inc.(VRNG) has the patented VringForward technology that ALL Cellular Telecommunications Carriers need embeded into Smartphones & Tablet PC’s. The patented VringForward technology is also desired as essential for Social Media Internet Companies such as FACEBOOK, GOOGLE, & APPLE to name a few on the shortlist. Vringo, Inc. holds a substantial advantage as they alone are the only company capable of offering this technology to the vast network of businesses going forward due to the exclusive competitive advantage of having the only technology available to offer the technology and the array of other cross platform patenteted technologies that work with and compliment VringForward. Vringo, Inc. is in a desireable position at this time as the vast customer base consists to billions of endusers of Smartphones/Tablet PC’s, Cellular Carriers, & Social Media Internet Sites that will be the expected standards. Any one of the Companies such as FACEBOOK for example would have a huge competitive advantage to its competitors if they were able to secure Vringo, Inc.’s Patents through a buyout of the company could use the technologies for itself and keep the patented technologies out of its competitors platforms and leaving them years behind in the dust grabbing marketshare from these competitors. Vringo, Inc. also has the luxury of Price Control as it has the sole technologies that have patent protection allowing for substantial profitability if it stays the set business plan leasing the technologies to the massive Live Video Over Internet markets or if a single Social Media Company such as FACEBOOK would trigger a wave of Bids from other Companies as a form of need for the technologies as a sole purpose of Customer Retention & Future Growth. If Vringo, Inc. were to sell to the highest bidder the offers could reach into the Hundreds of Millions to Billions due to the Cash Rich Companies that would be willing to Bid whatever it takes to have Propritary Ownership & the Exclusive use of the Needed Patented Technologies. Vringo, Inc. is priced cheap in The Market with a sub $100 Million Dollar Market Cap and a Small Outstanding & Issued Share Structure making Vringo, Inc. (VRNG) a “STRONG BUY” that presents the opportunity for “STELLAR UPSIDE RETURNS” with “MINNIMAL TO LOW RISK” given the known facts.”

  • Report this Comment On April 17, 2012, at 9:37 PM, rsinj wrote:

    nick, considering the incredible job you/they did with spelling, clearly the boiler room operation pumping the stock is indicative of how much meat there is behind this patent/lawsuit garbage.

    It's all fluff, there is no business, and the patents will not hold up under scrutiny. The entire chain of events leading up to this is quite funny, and google's attorneys will get it laughed out of court.

    Nobody "needs" this technology because there are hundreds of million smartphones/tablets in use, and for some reason, this company is losing money hand over fist with almost no sales. How can that possibly be if "ALL Cellular Telecommunications Carriers need" the technology embedded in their devices?

    VRNG will be back in the $1's once ll the players get out of the stock and the company has to announce earnings...ahem, losses.

    The author is dead on. You'd best be selling your shares before you watch them sink lower as the music stops playing.

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