Electronic Arts, Inc. (ERTS)

STA5248 (77.15) Submitted: 12/19/07 1:31 PM : Start Price: $58.36 ERTS Score: -13.14

The video game industry is going through many changes right now. It's seeing a rise of the smaller developers because of more casual games coming into the market from PC, to console games to even cellphone games and the availability of digital distribution. On the other hand, because of rising costs of making games on the console, you are going to see a lot of consolidation in the market. EA has been aggressively looking at many companies to buy, and the recent merger for Vivendi is a huge let down for EA. Additionally, contrary to popular beliefs, EA has seen profit margins on their major hits such as Madden erode away. Also, EA doesn't have any major MMO's out in the market as of now where as vivendi has the revenue stream from World of Warcraft. On the upside, EA does have a highly anticipated MMO coming out soon and they have also shifted their focus more on the Wii to take advantage of the huge audience. The management has also done some major overhauls to the business which are definitely a plus. EA has also been broading it's product lineup by introducing new IP's in order to make up for the loss of revenue from their major hits. However, keep in mind that major IP's are very risky and more than likely most of them will end up losing money.

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