EA Launches Warhammer Beta - Analyst Blog

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Electronic Arts Inc. ( EA ) recently announced the launch of the open beta version of Warhammer Online: Wrath of Heroes , a player-versus-player (PvP) free game, based on BioWare (an EA division) operated massively-multiplayer online (MMO) game Warhammer Online: Age of Reckoning .

In Warhammer Online: Wrath of Heroes, three teams comprising six gamers each will compete against each other in battles that last for approximately 15 minutes. The new game offers gamers a variety of heroes to choose from, each customized for different PvP play styles. Gamers can use virtual currency or real money to buy these heroes in order to advance in the game. The full version of the game is expected to release in the fall this year.

Warhammer Online: Wrath of Heroes is the latest addition to EA's strong portfolio of free-to-play games segment, which includes popular franchisees such as The Sims , Battlefield and Need for Speed. Last month, EA announced the availability of the beta version of its first MMO RTS game Command & Conquer Tiberium Alliances . In an RTS game, players have to maneuver units to secure areas of the map and/or destroy their opponents' assets within a very short span of time.

Although most of these games can be played for free, EA earns revenues through the sales of in-game items and advertisement. EA's digital gaming segment Play4Free boasts of more than 25 million active players worldwide, primarily driven by popular titles like Battlefield Heroes, Need for Speed World, Battlefield Play4Free, Dragon Age Legends, Battleforge and Lord of Ultima. This also drove EA's digital revenue in calendar year 2011, which surpassed $1.0 billion for the first time in the company's history.

With consumer spending on free-to-play games, mobile games and social games on the rise, we believe that EA's significant exposure to these segments provides it a competitive edge over traditional peers such as Activision Blizzard Inc. ( ATVI ) . Further, EA's accretive acquisitions of Klick, PopCap games and Playfish over the last couple of years have bolstered its social free-to-play portfolio to counter strong competition from the likes of Zynga Inc. ( ZNGA ) and also to offset declining sales of its core packaging division.

EA expects the digital segment to generate revenues of $1.15 billion to $1.2 billion in fiscal 2012. EA expects to sell more games from its famous franchises like FIFA and Battlefield through the digital format to boost its offerings going forward. EA expects contribution from free-to-play, casual and social games to increase to approximately 35.0% of worldwide digital revenue by calendar year 2013.

Our Take

We expect EA to continue to launch free-to-play social and mobile versions of its popular games going forward, in order to gain market share over the long term. However, apart from the freemium business model (which is maturing), we believe that EA needs to explore new revenue generating ideas such as "reward advertising" in order to remain competitive going forward.

Reward advertising refers to a business model where companies are allowed to advertise in-game for a fee. In turn, the advertiser offers in-game items to the players, along with rewards. When the players reach a certain game level, they are asked to click on the advertisement to win these gifts in order to proceed to the next level.

We believe that this business model will be particularly beneficial for EA, due to the huge popularity and addictive nature of its games, which will compel players to follow the directives of the advertiser, thereby boosting its advertising revenue growth going forward.

We have a Neutral recommendation on Electronic Arts over the long term (for the next 6 to 12 months). Currently, Electronic Arts has a Zacks #3 Rank, which implies a Hold rating in the short term.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Business , Stocks

Referenced Stocks: ATVI , EA , ZNGA

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