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$46.32 1.94 (4.37%)
7/8/2008 4:00 PM

Electronic Arts, Inc. (ERTS)

CAPS Rating:
***

The Company develops, markets, publishes and distributes interactive software games that are playable by consumers on video game consoles, personal computers, mobile platforms and online.

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Recs

4

Avatar NetscribeGames (22.98) Submitted: 11/14/06 7:42 AM : Outperform Start Price: $58.20 ERTS Score: -11.94

Electronic Arts has been one of the leading game developer and publisher, with biggest selling PC game - the SIMS series - having sold over 24 million copies to its credit. The market for the company is divided into four segments i.e. video games (consoles), PC’s, online and mobile or hand held. The console games are the biggest revenue earners for the company, generating over 65% of their total revenues, in which PS2 games contributes major chunk.

The long term outlook of the industry looks promising, with next generation consoles like Play Station 3 and Nintendo Wii due for launch in this quarter. Industry is set to grow to 126 million consumers, who will spend $8.3 billion by 2008 according to Yankee research group. EA being the major player will surely benefit from the growing market.

EA has been a highly research driven entity with research and development centers across the globe; it aims at achieving local as well as international “hit” titles. Currently new titles like Madden, NFL 07 and FIFA 07 are driving the company’s growth. Further by acquisition of JAMDAT in February 2006, the company has increased its focus on mobile game segment with formation of EA Mobile.

The Company’s online gaming market also looks attractive with broadband penetration in US household market expected to reach 50% by Jan 2007. Though this segment contributes marginally to over all revenues, it is certain to impel growth in the future.

A positive industry outlook, and expected higher margins, due to premium pricing in the initial phase of next generation games, the company looks set for a prolific present quarter. The cyclic nature of gaming industry, spawning highest revenue in December ending quarter, due to holiday shopping also makes the present quarter very promising.

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Avatar NetscribeGames (22.98) Submitted: 4/16/07 3:33 AM

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The new consoles have arrived, with Sony’s PS3, Nintendo’s Wii and Microsoft’s Xbox360 all wooing the gamers to gain the maximum market share. In the midst of these events Electronic Arts (EA) performance has been not up to the mark to state mildly. Though revenues have appreciated by 7% for the nine months ended 31 December 2006, due to strong sales of Madden NFL 07, NCAA Football 07 and NBA Live 07 in North America, it is the bottom line which has been a disappointment, declining by about 60%. However looking closer one can notice the huge decline in net income is primarily led by rise in research and development expense that was spent to develop newer games for the consoles, benefit of which may unfold in later quarters.

Electronic Arts currently appears to be in a collaboration mode. Its recent decision to buy 19% stake of Korea-based online gaming company, Neowiz Corp will enhance company’s stake in the booming Asian online gaming market, which the company ventured into with FIFA Online in Korea, and has now gained more than 4.4 million registered subscribers. EA’s latest agreement to sell music from video games via Apple's iTunes and the newly announced Interactive Music Videogame Rock Band, in collaboration with Harmonix and MTV, will aid company to improve its portfolio offerings even further.

Talking about the future prospects of Electronic Arts, one can state that, the growing demand and adoption of new consoles will act as the major driver for the company. But it is the product line which makes the difference for game publishers like EA. In 2007, its product line looks solid with regular updates of franchise titles like Sims and FIFA in the next generation consoles. While the launch of new Massively Multiplayer Online Role Playing Game, Warhammer Online: Age of Reckoning in major Asian regions is also expected to be a huge success. EA is also ready to launch its biggest collection of new titles for the rapid growing Wii, which will surely have a positive impact on the top line. Moreover, considering the rising revenues from in-game advertising, mobile gaming and more important with major research and development expenses for the new console games already done, 2007 might just prove to be a year to cash in on the success.

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