Electronic Arts, Inc. (ERTS)

SapphireSeas (75.93) Submitted: 11/01/07 7:10 PM : Start Price: $60.35 ERTS Score: -12.02

Reuters, 01 November 2007:

Electronic Arts Inc (ERTS.O) posted on Thursday an adjusted quarterly profit that beat expectations as the biggest video game publisher saw strong sales of titles like "FIFA" soccer and "Madden" football.

Shares of Electronic Arts rose as much as 3 percent to $60.51 in extended trading after the earnings report was released, from a $58.74 close in regular trading.

...excluding special items, EA said it earned a profit of 27 cents per share, beating the 20 cents per share that was the average forecast of Wall Street analysts, according to Reuters Estimates.

Net revenue was $640 million, down 18 percent from $784 million a year earlier. Including a $296 million increase in deferred revenue that will be recognized in future quarters, total revenue rose 19 percent.

EA said that for its third fiscal quarter, which covers the holiday season that is crucial for the games industry, it expected a profit excluding items of 75 cents to 95 cents per share, with net revenue between $1.63 billion and $1.8 billion.

The stock has risen nearly 17 percent so far this year, compared to a rise of 34 percent for rival Activision Inc (ATVI.O).

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Reuters, 18 June 2007:

"...Electronic Arts will reorganize the world's biggest video game publisher into four units, in an efficiency drive by its new chief executive.

Under the plan by CEO John Riccitiello, EA will consist of units that focus on sports, casual games, its "Sims" virtual dollhouse franchise, and other games.

EA said the changes, which will not involve job losses, should help it save money at a time when the cost of developing a top-tier game can run up to $20 million."

Ok, folks, here' the long outperform justification:

1. Aggressive new CEO (and former COO for EA) with loads of experience;

2. A good company with superb market share in computer gaming software;

3. Several blockbuster rollouts due in 2007-08, including "Hellgate: London", which has been developed by Flagship Studios, a firm loaded with talent from Blizzard North's DIABLO I/II and World of Warcraft development teams;

4. June 14 (Reuters) - U.S. sales of video game hardware and software in May jumped 50 percent from a year ago, driven by strong demand for Nintendo's Wii console and Sony's PSP handheld device, industry data showed on Thursday.

May sales were $815.5 million, up 49 percent from May 2006 but down nearly 3 percent from April's $838.6 million as the industry heads into its typical summer slowdown, data from market research firm NPD showed.

5. Online gaming population in China alone expected to double from ~35 million users to ~70 million users by 2010.

Summary: Yes, this stock is pricey, with P/E=193, and often sees ~10% volatility, but ERTS has lots of room to run. Outperform 1 - 3 years.

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