On Tuesday, Electronic Arts
The beneficiary of EA's news: mobile game-house Glu Mobile
Bulls will argue that $318 million is a small price to pay for a stick of Glu. After all, EA itself sells for more than $7.8 billion, and profitable Activision Blizzard
Fine and dandy, reply the bears. But here's the thing: Zynga is a profitable business today, and for that matter, so is PopCap. In fact, it's been profitable ever since it went into business 10 years ago. PopCap Games booked $100 million in revenue last year and is on pace to grow that figure 40% this year. In contrast, Glu saw its revenues decline 18% in 2010, and it's set for another decline in 2011. The company's been unprofitable for the past 12 months yet trades at an eye-popping 583 times the tiny profit it might earn next year.
Yes, there's a chance EA will come in and save Glu investors from their misery. After all, EA spent $400 million to buy Playfish two years ago and picked up Angry Birds publisher Chillingo for $20 million just last year. I think that with this latest PopCap purchase, it's safe to say there's a trend afoot. Glu could be the next name on EA's shopping list.
EA may be silly enough to spend hundreds of millions to acquire a money-losing business -- but that doesn't mean you should do likewise. Betting on a buyout is the investing equivalent of relying on the kindness of strangers. Sure, maybe someone will come along and offer you more for your shares than you paid for them -- but maybe not. And if no one does take those shares off your hands, you're the one stuck owning a money-losing enterprise.
I don't want to take that risk. Do you? If so, then go ahead and add Glu Mobile to your Fool Watchlist. As soon as that "greater fool" wanders in, ready to hand you some cash, we'll let you know.
Fool contributor Rich Smith owns shares of Activision Blizzard. The Motley Fool owns shares of Activision Blizzard and has opened a short position on Activision Blizzard. Certain Motley Fool newsletter services have recommended buying shares of Activision Blizzard; others have recommended creating a synthetic long position in Activision Blizzard.
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