Zynga was up 42 cents, or almost 5 percent today, to close at $8.87 a share.

That’s a huge reversal from earlier this week when the stock nosedived to an all-time low. Meanwhile, none of the traditional game makers were having such a good day.

Electronic Arts closed down $1.47, or 7.5 percent, to $18.04 a share; THQ fell 7 percent to 66 cents a share; Take-Two Interactive fell .5 percent to $14.50 a share; and industry-leading Activision Blizzard slipped 2.5 percent $12.24 a share. GameStop also traded lower, finishing off the day down 2.8 percent to $23.51 a share.

The game makers were universally feeling the impact of an NPD Group report that revealed yesterday that videogame software sales fell 8 percent in December compared to the same month in 2010. When including hardware and accessories, like game cards, the entire industry contracted by 21 percent year over year.

Potentially, investors were betting that if the traditional game-makers weren’t fairing well, then Zynga was a good bet. The leading Facebook game-maker operates purely online and on mobile, so it potentially would be more isolated from the retail and packaged goods sectors.

The old guard vs. new guard battle also played out on the front lines yesterday.

EA was dealt an additional blow when Zynga announced it had hired away Barry Cottle, head of Electronic Arts’ Interactive division. Cottle, who was in charge of the company’s digital strategy, including social and mobile games, was EA’s biggest weapon in fighting Zynga’s dominance on Facebook and had led EA’s rise on mobile.

But EA’s loss was Zynga’s gain.

The social games leader appointed Cottle to the position of EVP of business and corporate development in charge of new global partnerships, acquisitions and other development roles.

Terms of the deal were not disclosed.

GMG is a publisher of digital currency cards and works closely with Facebook to manage, distribute, market and manufacture the cards.

The cards, which are sold at major retailers including Best Buy, RadioShack, Target and GameStop, are good for Facebook Credits, which is the digital currency used inside all games on the social network.

The digital currency market is growing as more games are played online for free and give players the option of buying virtual goods inside the game. Rather than having to enter a credit card number online, game cards can be conveniently purchased in cash and redeemed online. Another big player in the industry is Atlanta-based InComm.

Topps, which was acquired and taken private by Michael Eisner’s Tornante Company and Madison Dearborn Partners in 2007, says it will leverage the acquisition to enter the digital currency market, while bringing manufacturing, design and collectibility skills to digital currency cards.

Rob Goldberg, the CEO of GMG, will become the VP and general manager of the digital currency business, reporting to Topps CEO Ryan O’Hara. GMG will represent the company’s third business division in addition to trading cards and confections, such as Bazooka bubble gum.

GMG’s other executives, Tim Pechmann and Jeff Mickeal, will also join Topps.

GMG works with about 45 clients, including the NFL and game companies like THQ.

Last week, PopCap accepted Electronic Arts’ bid of $1.3 billion, including earn-outs, and opted to turn down a smaller — but all-cash — $1 billion offer from Zynga.

With that kind of dough raining down on the games industry, it’s obvious that more blockbuster purchases will ensue.

If that’s the case, the question is who will be next?

First, it’s important to understand why there’s a sense of urgency. Right now, nontraditional digital gaming platforms, like mobile and social, are really starting to take off, and game publishers need new content and expertise to be a player on those platforms.

“The general conversations have increased,” said Kushal Saha, the managing director of the Information Technology practice at Cascadia Capital, a Seattle-based investment bank. “We are seeing a lot more activity in financings as well. When you have a $1.3 billion acquisition, that really creates a lot of tailwinds from investors and strategics.”

Tim Chang, a partner at Norwest Venture Partners, has a theory as to who will be the most active in the next wave of acquisitions: It will be companies from China and Japan that are trying to get a foothold in the lucrative U.S. games market.

Here are just some of the recent transactions: Tencent, the giant Chinese Web holding company, bought Los Angeles-based Riot Games for about $400 million; OpenFeint was purchased by Japan-based Gree for $100 million in April; and Japan-based DeNA bought San Francisco-based ngmoco for $400 million late last year.

Specifically, he says these companies will be looking to buy game studios, which can create content for new platforms.

Ngmoco is building a mobile social network, and while it develops some games in-house, DeNA will need much more content to be successful. Same goes for Gree, which purchased OpenFeint, a mobile social platform that has 100 million players signed up.

Gree’s Senior Product Manager Jori Pearsall said that Gree is trying hard to get up and running in the U.S., where they have hired about 40 employees who are independent from OpenFeint.

Pearsall says its first game is expected to launch soon on the OpenFeint mobile social network.

In other words, first comes distribution. Next up: content.

One example of this already taking place is the merger between 6waves and Lolapps, which was announced earlier this week. San Francisco-based Lolapps is making social games for Facebook, while Hong Kong-based 6waves has been more focused on building a publishing platform.

Together, the two will have a publishing platform with its own games.

One of the companies that is being considered an obvious acquisition target is Glu Mobile, which is making social games for smartphones and tablets. Since the PopCap acquisition was announced, Glu’s stock has been trading close to $6 a share, up from $5.20 early last week. It is now trading at $5.64.

Are people sniffing around Glu?

“Nothing is off the table. We’ll do what’s best for the shareholders. We have a vision and a strategy and we are executing on the goal of transitioning to one of the top three feature phone companies to our goal of being one of the top freemium tablet and smartphone games company,” said Michael Breslin, Glu’s VP of marketing.

Other potential acquirers are in the U.S., ranging from content companies like Time Warner and Disney to other game makers like Activision, THQ or Ubisoft. Zynga has been acquiring more than one company every month for nearly a year. Google could even be a candidate if it’s truly serious about its Google+ games network.

Other companies for sale that would have the content and the talent include any of the independent studios in the top 20 on Facebook or iOS, ranging from Crowdstar to RockYou, or even a virtual world like Linden Lab.

Photo Credit: Jason Pratt.

Broadpoint.AmTech analyst Brian Schachter raised that question in a research report Friday, asserting that there is excess capital at many Asian video game companies, particularly in China. While noting that there would be considerable hurdles to overcome, Schachter wrote that both THQ and Take-Two Interactive (TTWO) could be potential takeover targets for Asian players looking to deploy capital in the U.S.

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THQ CEO Brian Farrell said in a statement that the company’s goal is to return to profitability and generate positive cash flow in the March 2010 fiscal year, and to position the company for long-term sustainable growth.

The company said March quarter results will include $45 million in “realignment expenses,” including $4 million in cash costs. The restructuring includes cutting its SKUs by about 20 percent and closing or selling four of its game development studios. The plan: producer fewer, better games.

Kaufman Bros. analyst Todd Mitchell this morning pounded the table on the stock, repeating his Buy rating and $6 target price, and asserting that there are near-term catalysts ahead for the stock. Weirdly, the note actually says that the company will “soon announce its restructuring is complete,” and of course they announced exactly that this morning. (He should have issued the note a day earlier, I’d say.)

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That’s the underlying question in a research note this morning from Citigroup’s Brent Thill. On the surface, he hardly sounds positive. Thill maintains a Hold rating, and cut his price target to $3 from $5.50. He also trimmed his EPS estimate for the March 2010 fiscal year to 29 cents, from 39 cents. Thill notes as well that there is “little buzz” at this point about THQ’s pending launch of the games Red Faction and Darksiders. But he says there is good buzz building for its upcoming UFC game, and that its game, Warhammer 40,000: Dawn of War II, is selling well.

Meanwhile, Thill writes that the company’s studio restructuring realigns costs without cutting into its “top development muscle.”

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But the stocks are coming under pressure, due at least in part to cautious comments on the prospects for the industry in the unfolding economic downturn by Merrill Lynch analyst Justin Post. The Merrill analyst cut his ratings on both Electronic Arts (ERTS) and Activision Blizzard (ATVI) to Neutral from Buy. He maintains his Underperform rating on THQ (THQI).

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THQ (THQI) shares hit the skids in late trading, after the videogame publisher provided a weak outlook for the March 2009 fiscal year.

For the fiscal second quarter ended September, the company posted sales of $164.8 million and a non-GAAP loss of 46 cents a share. THQ noted that this was worse than its previously forecast loss of 35-39 cents a share “primarily due to lower-than-anticipated international sales” of its Wall-E game and higher-than-expected sales returns and allowances.

THQ unveiled a new strategic plan that includes the closure of five studios, resulting in the reduction of 250 jobs, or about 17 percent of its studio staff. The company also cut its fiscal 2010 product development spending plans by about $100 million, which brings its total budget for 2010 $30 million below the 2009 level.

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It’s not exactly a table-pounding buy; his notes advise against trying to “catch a falling knife,” but instead suggest investors ought to be ready to buy them when the economy settles down. Not a big surprise, then, that the reaction to the call is lukewarm.

• For Activision Blizzard, Mitchell goes to Buy from Hold, while cutting his target to $17.50 from $19. He maintains a 2008 EPS estimate of 60 cents, but trims 2009 to 70 cents from 72 cents. He says that the Activision and Blizzard combination is “powerful,” and that “the stock is at a point where investors should begin to get constructive with the goal of putting new money to work as we signs of economic stability emerging.”
• For Electronic Arts, his rating goes to Buy from Hold, but his estimate drops to $42.50 from $58. For the March 2009 fiscal year, his EPS estimate drops to $1.25 from $1.35; for ’10, he goes to $1.90 from $2.13. Despite the lower estimates, he contends the stock is oversold.

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