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Electronic Arts Spending On Strong Online Bid

By    |   Friday, 04 May 2012 09:26 PM

Electronic Arts (EA) is spending to build up a strong presence in online gaming, following a successful run making games for popular consoles. Analysts are watching that transition, as well as the overall economy, to see how the game maker will fare in its bid.

Electronic Arts is the video game software maker behind titles such as Battlefield, Dead Space, Dragon Age, Mass Effect, Medal of Honor, Need for Speed, and The Sims.

EA also is well-known for its licensed sports-themed games, including Madden NFL and FIFA, as well as toy- and movie-themed games based on the Harry Potter novels and Hasbro’s toy and game intellectual properties.

“Another cornerstone of our strategy is to publish products that can be iterated, or sequeled. For example, a new edition for most of our sports products, such as Madden NFL, is released each year. Other products, such as The Sims and Battlefield, are sequeled on a less-frequent basis.”

“We refer to these successful, iterated product families as ‘franchises.’ We also make add-on content available for purchase online or through expansion packs sold at retail for many of our products.”

EA makes its software for gaming consoles, PCs, mobile phones and tablet computers, selling them in package forms and online. In the fiscal year ending March 31, 2011 the company spent $1.15 billion on game development, for instance.

In 2011, EA launched a highly anticipated massively-multiplayer online role-playing game, Star Wars: The Old Republic. Also in 2011, EA agreed to buy PopCap, a developer of games for mobile phones, tablets, PCs and social networking sites.

“Consumers are spending an ever-increasing portion of their money and time on interactive entertainment that is accessible online, or through mobile digital devices such as smartphones, or through social networks such as Facebook,” management told investors in a recent filing.

“We offer a variety of online-delivered products and services. Many of our games that are available as packaged goods products are also available through direct online download through the Internet, including on our own commerce site, called Origin.”

EA has a market cap of $5.19 billion in a sector, software, where the average company size is $12.96 billion. Its projected earnings per share growth for the coming year is 34.52 percent, more than double the sector average at 14.19 percent.

Mixed calls

Analysts are mixed on EA, with sell calls from Deutsche Bank, Thomson Reuters, GMI and Ativo Research, but buy calls from Longbow, Stifel Nicolaus and Citigroup Investment Research.

EA’s most recent results beat the consensus estimates from Zacks Investment Research, but the analysts there put the stock at neutral for now based on the economy at large. “We believe that high-quality titles along with increasing online exposure (and) social games guarantee market share gains over the long term,” they wrote in mid-March.

“However, the gloomy macroeconomic environment, increasing competition and weak video game sales results over the last 12 months, compel us to remain cautious in the near term.”

EA next reports on May 7.

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