Video game developer and publisher,
Electronic Arts Inc.
(
EA
) recently launched a mobile version of the long-running animated
series "The Simpsons." The mobile game called
The Simpsons: Tapped Out
is currently available in
Apple's
(
AAPL
) App stores and can be played on iPhone, iPad and iPod touch for
free.
The Simpsons: Tapped Out
challenges gamers to build their own version of Springfield, a city
accidentally blown up by one of its residents, Homer. Players are
expected to complete a number of levels to unlock virtual goods and
money that they can use to beautify their city according to their
choice.
Moreover, with the help of EA's origin platform players can
visit his/her neighbors Springfield and is allowed help in
completing different tasks. This co-operative gaming mode is one of
the major attractions of
The Simpsons: Tapped Out
, in our view.
We believe that the popularity of "The Simpsons" brand, coupled
with its availability on Apple devices such as the iPhone 4S, will
benefit the new game going forward.
The Simpsons: Tapped Out
is EA's second free-to-play mobile game after it launched
The Sims: Freeplay
during the third quarter of fiscal 2012.
To date, in fiscal 2012, the company has released mobile
versions of some of its well known titles such as
FIFA 12
, Madden NFL 12 and
The Sims 3 Pets
. EA is expected to release a mobile version of
Mass Effect 3
in the upcoming fourth quarter. We expect that EA will continue to
release mobile versions of its popular games going forward in order
to gain market share in the mobile gaming sector over the long
term.
Social and Mobile Gaming: Long-Term Trends
According to research firm IBISWorld, social gaming is expected
to reach $11.3 billion by 2016. According ABI research, mobile
gaming is expected to generate $16.0 billion in revenues at the
same time, a massive increase from approximately $5.0 billion
reported in 2011. As per Juniper Research, social and casual games
will account for a major chunk of mobile game downloads going
forward.
We believe that the social gaming market will further benefit
from the increased usage of smartphones and tablets going forward.
As smartphones and tablets become more powerful with faster
processors and improving telecommunication technologies (such as
4G), massively multiplayer online (MMO) games have become easy to
play on the move. This will further boost the demand for social and
co-operative games going forward.
Most of the social games are free to play (freemium) and
generate revenue primarily through the in-game sale of virtual
goods. According to market intelligence firm In-Stat, the worldwide
market for virtual goods was worth $9.0 billion in 2011 and is
expected to reach $15.0 billion by 2014. As per Juniper Research,
revenues from purchases of virtual goods totaled $2.1 billion in
2011 and are expected to grow to $4.8 billion by 2016.
On the other hand, advertising spending on mobile games is
expected to reach approximately $900.0 million by 2015. We believe
that the freemium model will continue to remain the primary revenue
contributor for social game developers over the long term.
EA Better Placed than Zynga?
We believe that social gaming is currently a duopoly market with
the major players being EA and
Zynga Inc
(
ZNGA
). With the launch of new social games such as
The Simpsons: Tapped Out
, EA has thrown a significant challenge to the dominance of
Cityville
,
Farmville
and other popular social games from Zynga. We note that Zynga's
Cityville
and EA's
The Sims Social
are ranked #1 and #2, respectively, as the most popular games on
the social networking website Facebook.
We note that mobile revenues form approximately 5.0% to 7.0% of
both EA's and Zynga's revenue base and both the companies expect it
to play a big part going forward. We believe that it is extremely
difficult to point a winner right now as both the companies boast
significant market share, talented development teams and
significant product pipelines.
However, we believe that EA has a slight competitive edge over
Zynga owing to its well established product portfolio for the
mobile segment and its acquisition of Zynga's direct competitor
PopCap Games in July 2011. Moreover, Zynga's lack of revenue
diversification is a major advantage for EA going forward, in our
view.
We remain Neutral on both EA and Zynga. Currently, EA has a
Zacks #3 Rank, which implies a Hold rating on a short-term basis.
On the other hand, Zynga has a Zacks #2 Rank, which implies a Buy
rating in the short term.
APPLE INC (
AAPL
): Free Stock Analysis Report
ELECTR ARTS INC (
EA
): Free Stock Analysis Report
ZYNGA INC (
ZNGA
): Free Stock Analysis Report
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