Video Gamers Go From Hunters to Hunted

Electronic Arts (NAS: EA) is in the game -- and it may also be up for sale.

A South Korean newspaper is reporting that Asian gaming giant Nexon has made a buyout bid on EA. The unconfirmed story was enough to send EA nearly 5% higher at the open this morning.

It's easy to see why EA is being made out to be buyout bait these days.

  • The stock hit a new 52-week low on Monday.

  • Sources were telling Reuters earlier this month that the company was planning to lay off between 500 and 1,000 employees.

  • Video game sales have been sluggish for most of the past three years.

Bulls will argue that this is probably the worst time to sell, even if Nexon offers a modest premium.

EA is coming off a healthy holiday quarter. CEO John Riccitiello boasted that his company generated its highest operating cash flow in 31 quarters, fueled by strong sales of Battlefield 3 and the introduction of Star Wars: The Old Republic.

However, the company also tempered near-term expectations at the time by lowering its guidance for the quarter that ended last month. EA reports in two weeks, and that's when things will get interesting.

Just as Activision Blizzard (NAS: ATVI) has seen World of Warcraft players decline over the past year, what if the Star Wars gamble that EA is making in massive multiplayer online gaming disappoints?

EA is still not back to where it was a few years ago. For its fiscal year that ended in March, analysts see revenue of $4.17 billion, short of the $4.21 billion it rang up in fiscal 2009. The adjusted profit of $0.85 a share that the pros are targeting -- while an improvement over fiscal 2011's showing -- is still well shy of the $1.06 a share that the company earned in fiscal 2008.

Can you imagine where EA would be if it hadn't spent the past few years overcoming its organic malaise by acquiring a handful of smaller developers?

Zynga (NAS: ZNGA) -- the social gaming leader that went public a few months ago -- already commands a larger market cap than EA. It's not that EA isn't trying to cash in on Zynga's popularity. It has acquired casual gaming darlings Playfish and PopCap. It made a social gaming splash last year by repositioning its Sims franchise. The Sims Social has 16.5 million unique monthly players on Facebook.

However, it's ultimately sobering to see the traditional gaming giants being discussed as potential acquisition targets. Just a few years ago, EA was trying to buy Take-Two Interactive (NAS: TTWO) in a deal that the Grand Theft Auto publisher ultimately rebuffed. Now the hunter is the hunted.

How quickly the tables turn in this game of prey.

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At the time thisarticle was published The Fool owns shares of and has written calls on Activision Blizzard.Motley Fool newsletter serviceshave recommended buying shares of Activision Blizzard and Take-Two Interactive Software.Motley Fool newsletter serviceshave recommended creating a synthetic long position in Activision Blizzard. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree 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.

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