In 2010, Electronic Arts (EA herein) entered the mobile market with its first-ever mobile title, Flight Control HD. Despite having multiple hits, often empowered by well-known IP such as The Sims, Star Wars, and FIFA, EA still needed to find consistency in its mobile success.
To fill these gaps, EA strategically purchased pre-established mobile game developers and publishers in search of scaling its mobile department and unlocking upside as part of larger, more supportive teams. Seventeen years after its initial mobile games acquisition (JAMDAT Mobile), EA continues to refine and conquer mobile from multiple different lenses; at the time of writing, a total of eight mobile-oriented acquisitions have been completed.
EA's largest acquisition to date is the purchase of Glu Mobile for $2.1B. Glu Mobile, founded in 2001, is a leading developer and publisher of mobile games. Glu’s diverse portfolio features top-grossing and award-winning original and licensed IP titles, including Covet Fashion, Design Home, Disney Sorcerer’s Arena, and Kim Kardashian: Hollywood. Based in San Francisco, Glu has two teams consisting of more than 800 employees, which added to EA’s already significant ~10,000 employees.
The primary goal behind this sale was to improve EA's prestige and abilities on mobile; a similar strategy seen in Activision Blizzard's acquisition of King (of Candy Crush fame) back in 2016. You can read more details about the acquisition in our previous article. The deal closed 18 months ago, which now presents us with an excellent opportunity to look back at the performance of Glu’s games, the departure of leadership, and whether EA has improved at all in its ability to acquire and, more importantly, support new mobile teams.
EA’s management had publicly stated that it expects to grow its mobile business to $2B in revenue by 2024. With Glu at the forefront of EA’s mobile endeavors, this goal naturally leans heavily on its performance. However, EA has only generated $782M from mobile in the last 12 months. That’s $173M higher than the previous 12, but this number puts it far behind schedule in reaching its goal.
Of course, revenue aside, EA’s acquisition of Glu was also a long-term investment to better establish and improve its entire mobile division. In the initial press release announcing the acquisition, EA listed a series of justifications behind the purchase decisions and plans for the future. Let’s look at how those played out…
#1 Accelerating Growth
In total, EA spent $3.5B on mobile acquisitions in 2021 alone. This added several high-profile titles to its portfolio, which unfortunately have been declining in revenue ever since. EA’s mobile total revenues have still been on the rise, though — thanks to a few (non-acquisitive) additions like Apex Legends Mobile and Madden 23 Mobile — but it’s clear that several opportunities were missed.
Let’s take a closer look at Glu’s portfolio and what happened revenue-wise in the year following the acquisition:
Unfortunately, Glu has shown revenue losses across the board — except for its annual MLB offering — and it hasn’t improved much since Q1. This decline is not entirely due to the teething issues of the acquisition (although internal issues certainly play a role), as IDFA handicaps likely played a part, too.
Let’s hone in on Disney Sorcerer’s Arena for a moment. This high-profile, high-production-value game failed to hit the mark, and its lack of success is a combination of many things, some small and rectifiable, and some much larger. Unfortunately, each mistake hits much harder when you have a high-profile IP.
Disney appears to be very accommodating with lending its classic IP to several similar titles in short succession (i.e., Disney Heroes: Battle Mode and Disney Sorcerer’s Arena), which, in this case, has proven harmful to product growth. This may be one of the reasons for the shockingly low organic downloads during the launch period, as they are dispersed across two similar titles, which continue to decline rapidly.
This is an excellent example of how being a part of EA could soften production through connection and status, speeding up slow approval processes and negotiating high licensing costs that often handicap UA. Hopefully, we will begin to see this financial and production support within portfolio titles, as it seems to be subtle at present.
If we step back for a second and look at the company's mobile revenue for Q1 2022 (ending March 31st), it actually decreased by 47.19%. Not quite the growth acceleration EA anticipated. It should have been more pragmatic with its expectations of IDFAs’ impact and acted on learnings from the mistakes made over a decade ago with PopCap and Playfish, creating an internal infrastructure that nurtures studios to lessen losses.
Interestingly and despite lower revenues, download count has increased dramatically across Glu’s portfolio post-acquisition. While a positive, there’s tremendous work to be done to better monetize these downloads and provide more scale and profitable ROI to the business. IDFA issues aside, this divergence of downloads and revenue is a clear miss.
Of course, there still are strengths in this combination of EA and Glu:
- High LTV and MRR across leading portfolio titles
- Domination in key mobile genres such as sports and lifestyle
- A well-known roster of owned and licensed IPs, i.e., Disney
- A large (and growing) audience
- Ability (both financially and strategically) to reach global regions and markets
However, to successfully capitalize on these advantages, strong leadership is needed, which brings us to the next point.
#2 Experienced Creative Leadership and Enhanced Team Capabilities
Notably, key figures from the origins of Glu, such as Nick Earl (CEO) and Eric Ludwig (COO), left the company shortly after it was acquired, a reaction reminiscent of when EA purchased PopCap and PlayFish over a decade ago. It's hard to overstate how bad losing both key leaders this early was. Not only does losing leadership pose challenges in normal times, but it can pose even harder challenges in times of change when having a strong pulse on strategy, integrations, communication, and general guidance is most needed.
The downside of losing leadership also isn’t only about Glu. EA Mobile as a whole, which has faced constant restructurings and leadership issues up and down the ranks, could likely have leveraged the talents of Glu’s top leaders to better organize and operate. Nick, in particular, who spent 13 years at EA — including serving as Senior Vice President & General Manager of EA Mobile — could likely have done a lot of good, and this fact makes his swift post-acquisition departure that much more peculiar. Of course, deeply knowing the chaos of EA Mobile could be part of why they left, but buying a company all to have its leaders depart is a huge mistake on EA’s part. The company shouldn’t have done this deal if it was likely the top leaders would depart; locking down contracts with top leaders as a part of dealmaking is a good option in situations like this.
Naturally, the mix of departed leadership, ambitious (and probably unrealistic) KPIs, and a new structure with new ways of doing things but with limited support has left Glu in a tough spot. If anything, these leadership mistakes amplify the macro hardships the company already would’ve faced.
It also highlights that even after years of operating, EA Mobile continues to struggle. It has yet to find the ideal structure, having to get approvals (financing, hiring, etc.) from the parent org decreases autonomy and slows down progress, and it doesn’t support its studios as well as they’d like (or need) to be supported. We won’t diagnose the internal solutions from afar — and management is likely hyperaware of these problems — but it’s clear that more changes need to be made if other deals like Glu are to work out. Hopefully company-veteran Laura Miele, who’s been COO for only a year, can help accelerate any needed changes.
Of course, the lower risk approach to mobile is to better to hire and support key functions (including improving shared infrastructure - like UA) before executing large deals and perhaps lean more on co-developments (all of which EA seems to be trying to execute on), but larger leadership changes might need to be made to set EA Mobile up for larger success.
#3 Expanding Successful, Scalable Live Services
In the acquisition announcement, Nick Earl, the former CEO of Glu Mobile, said the following: “Joining forces with EA will take growth games like Covet Fashion, Design Home, Kim Kardashian: Hollywood, and the MLB Tap Sports Baseball franchise to the next level, expanding their reach to even more global audiences.”
Traditionally, both EA and Glu have often proven successful in creating mobile games with longevity and live services that engage sizable communities. We’re still hopeful that, now under EA’s umbrella, Glu will deliver enhancements to well-performing (but not yet exceptional) titles, and also that there’s opportunity to pursue internal co-development on key IPs but in genres that Glu is best at. Also by joining EA, Glu theoretically gets greater access to superior distribution. For example, EA’s global licensing and enhanced distribution capabilities can unlock new markets for Glu’s games, giving older titles a new lease of life.
At the time of the acquisition, Glu reported a small profit margin of 3.8% — a fraction of EA’s much larger profit margins. It’s unlikely Glu’s margins will ever be close to EA’s as a whole, but there are some levers that can be pulled to improve them, as well as drive growth in ways Glu couldn’t do alone:
- Expanding the playerbase through portfolio cross-selling and UA support. Of course, even though EA’s network has over 100M monthly active players, cross-selling across different platforms/genres has major limitations, and EA's UA team has seen departures over recent years. Therefore, it may take longer than hoped for to get above average support here, but there’s still upside potential.
- Localization of new and existing titles, bringing them to broader audiences and gaining more from predominantly F2P markets, i.e., SEA.
- Streamlining Glu’s operations — increasingly remove HQ-level functions (like finance, HR, and legal) so that Glu can focus purely on making games - and be more profitable while doing so.
- Cutting investment around games not yielding high enough returns. This may hurt growth at the expense of profitability, but it’s better to be profitable and await better opportunities than heavily invest into low-returning growth.
- Leadership training related to structure, processes, scalability, and growth, both from a product and studio point of view.
Further, these scalable live services can extend across key genres. EA has a diverse roster of complimentary titles (sports, lifestyle, RPG, etc.) that can be cross-promoted with Glu’s leading IP, which includes MLB Tap Sports and Diner Dash. This is likely a strong reason for Glu’s pursuit of the deal, similar to what made Codemasters choose EA over Take-Two Interactive in December 2020.
The combined organization will have a demographically diverse audience, with significant opportunities for franchise and market expansion. At the time of Codemasters’ purchase, Blake Jorgensen (former COO and CFO of EA) mentioned that he believed they would be able to continue to grow both businesses and generate higher returns than they have done in the past. Indeed, EA has a network of 500M player accounts that Codemasters and Glu Mobile can perhaps leverage to expand the playerbase for their titles and grow their respective businesses.
In Retrospect
From everything we’ve analyzed thus far, we can safely conclude that EA’s acquisition of Glu was a disaster:
- Glu’s top leaders were not retained, which not only made it harder to lead Glu post-acquisition, but it took away real opportunities for EA Mobile’s leadership to improve.
- EA’s management was overconfident in Glu’s performance and highly underestimated IDFA. If EA knew that nearly all of Glu’s top performing games would decline in the year post-acquisition, it almost surely wouldn’t have done the deal.
- EA Mobile, despite years of constant change, continues to not support studios at a high level.
- Glu has yet to level up EA’s mobile ambitions by successfully leveraging top IP, sharing best practices, accelerating profits, etc.
- Because of these key factors, EA seriously overpaid.
EA needs to look internally, learn from its mistakes, and support its teams more. It has much to offer outside of money but doesn't facilitate these offerings to the point of significance yet. That said, building technical and marketing-related central infrastructure is still good for helping smaller teams ramp up. Increased download numbers already indicate growth potential, and it's just a matter of figuring out how to retain and monetarily convert those players for long-term scalability.
Like with many other mobile studios, timing played a big part in Glu’s performance over the past couple years. EA underestimated the impact IDFA would have on revenue; the loss of precision over UA due to the IDFA change during Q3 2021 made UA significantly less effective and less profitable on iOS.
Clearly, the acquisition of Glu was yet another in a long string of underperforming mobile M&A deals for EA. Not all value is lost — Glu's games still represent a notable business — and we can only hope that EA will learn from its mistakes. EA still has tremendous potential with mobile, but it needs to be more conservative in its assumptions, level up its broader EA Mobile infrastructure, and think beyond purely M&A. It's taking clear steps, but there's a long way to go.
A big thanks to Becky Matthew for writing this essay! If Naavik can be of help as you build or fund games, please reach out.
