Electronic Arts (EA)
recently announced that it will close down Facebook
(FB) based games namely The Sims Social ,
SimCity Social and Pet Society from Jun 14, 2013.
EA stated that the three games had lost their popularity compared
with the likes of Bejeweled and Plants Vs Zombies
, which the company has vowed to continue going forward.
Although Facebook continues to attract more than 250 million
gamers each month, game developers and publishers such as EA and
Zynga (ZNGA) have found it difficult to maintain subscriber
base in recent times. Early this year, Zynga closed down a number
of Facebook games as a part of its restructuring effort and also
The primary reason behind the loss of subscriber base is the
cut-throat competition EA has been facing from other developers,
including Zynga, in the recent times. Most of the Facebook based
games are free to play (i.e. they do not earn any money upfront)
and generate revenues through the sale of virtual goods and
The move to shut down these three social games forms a part of
EA's ongoing restructuring activity. With revenue generation
from social games slowing down, EA is increasingly investing
in mobile games. EA remains focused on developing a strong product
pipeline for the mobile segment by bringing its legacy brands such
as FIFA and Battlefield going forward.
We believe that the popularity of these legacy brands will boost
EA's penetration in the mobile games market going forward.
Moreover, we believe that EA's recent moves (including the shutdown
of the Montreal studio) to realign costs in order to gain
operational efficiency are a positive, which will boost
profitability going forward.
Additionally, we believe that EA's strong digital portfolio will
drive top-line growth going forward. Reportedly, both
Microsoft (MSFT) and Sony are expected to launch their next
generation consoles this year, which will be a significant growth
catalyst going forward.
However, we believe that weakness in retail sales amid an aging
console system lifecycle, the cannibalizing effect of free-to-play
games and tough competition remain major concerns in the near
Currently, EA has a Zacks Rank #3 (Hold).ELECTR ARTS INC (EA): Free Stock Analysis
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