EA Set to Release Mass Effect DLC - Analyst Blog

By Zacks Equity Research,

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Electronic Arts Inc. ( EA ) recently announced that it will launch a new downloadable content (DLC) pack for Mass Effect 3 . The new DLC known as Mass Effect 3: Extended Cut can be downloaded for free on Microsoft's ( MSFT ) Xbox 360, Sony's ( SNE ) PlayStation 3 and personal computers this summer.

Developed by BioWare, the Mass Effect series is one of the most successful franchises for the company with over 7 million copies sold to date. However, the latest version faced severe criticism because of its inconclusive ending. The new DLC expands the story of the original game, adding a new dimension to the ending; and EA hopes that it will be able to woo back dissatisfied customers.

So far, EA has always benefited from the launch of DLCs for some of its famous franchises. In the last concluded quarter for instance, DLC along with mobile and other handheld devices were responsible for much of EA's digital revenue growth. EA's DLC and free-to-play micro transaction content shot up 86.0% year over year to $123.0 million in the last quarter.

Electronic Entertainment Design and Research (EEDAR), a video game market research firm, estimates that given the increasing popularity among the Xbox 360 and Play Station 3 console owners, DLCs will generate $1.0 billion in sales in 2012. EA, with its famous franchises and timely content pack releases, is likely to be one of the chief beneficiaries.

However, some gamers remain dissatisfied with the continuous launch of DLCs, as they believe that DLCs are being used by gaming companies such as EA to exploit them. They have blamed video game companies of intentionally holding back game content, which they later on release as DLCs to garner additional revenues. Most recently, EA was voted the worst American company of 2012, apparently for these practices in an annual contest organized by the Consumerist.com.

Although this negative publicity may hurt EA's subscriber base, we nonetheless believe that EA will continue to launch DLCs of its popular franchises going forward. We believe that EA's high-quality titles and a robust product pipeline along with the increasing online exposure and traction in the social and mobile gaming market will not only offset any near-term dissatisfaction among its subscribers, but will also boost top-line growth over the long term.

However, we remain cautious on EA due to the sluggish consumer spending, dismal video game sales and increasing competition from its peers such as Activision Blizzard Inc. ( ATVI ) . Activision has some of the famous franchises of the gaming industry in its kitty, which makes it a strong contender for the top spot in the billion dollar DLC market going forward.

Considering these factors, we have a Neutral recommendation on EA over the long term. Currently, EA 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 Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: ATVI , EA , MSFT , SNE

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