EA chief suggests that Zynga overpaid for OMGPOP/Draw Something

Electronic Arts chief executive John Riccitiello took a not-so-subtle shot at Zynga today during EA’s conference call with analysts. He said that EA would not pay a large amount of money “just to buy a brand” or to buy an “instant one-hit wonder.”

That was a not-so-veiled reference to Zynga’s $180 million-plus purchase of OMGPOP, the publisher of mobile gaming phenomenon Draw Something, which skyrocketed to tens of millions of users in a matter of two months after its release on the iPhone. But Draw Something’s numbers have slipped by 5 million users in recent days, and that’s made some observers wonder if Zynga paid too much for the acquisition. Riccitiello did not specifically name Zynga in his comments. But some analysts have suggested the same thing more directly.

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EA is expecting to launch a major social game this quarter. But the company has seen its share of the Facebook gaming market slump since The Sims Social ran its course during the past year. EA bought Playfish in 2009 for $400 million to get into the social game business, but it has not been as acquisitive as Zynga.

Riccitiello said that he is “anxious” about paying for new hit games and their developers.

“There’s an awful lot of noise around a brand when it rises,” he said. Acquirers are willing to pay 10 times or 20 times a company’s current earnings on such acquisitions, he said. But he thinks that three times or four-times earnings multiples are a more reasonable price. Otherwise, he said, “You have to have a belief that it will last for a very long time.” He said that EA brands such as The Sims, SimCity, and Bejeweled have withstood the test of time.

“We don’t need to buy a brand,” he said. “That doesn’t mean we won’t invest.”

But he said the assumptions of “hockey stick” upward rises in valuations for startups are not reasonable.

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