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Massive Response for EA's Star Wars - Analyst Blog

Electronic Arts Inc. 's ( EA ) ambitious project, Star Wars: The Old Republic, has caught the imagination of the gamers, as millions of Star Wars' fans logged into the game to celebrate their holidays in Sith lords or Jedi knights' style. Stats revealed by the company suggested that over a million gamers kept themselves busy in the game for 5.5 million game hours over the last weekend.

The online massively multiplayer online (MMO) game, released on December 20, 2011, has already logged 60 million game hours with 850,000 Sith Warriors and over 810,000 Jedi Knights characters being created. The game has already accounted for 3 billion NPC (Non-Player Character) being eliminated while 260 million quests being completed.

The aforesaid data released by the company not only reveal the growing popularity of the game since its release, but also highlights EA's committed effort to make the game a grand success. The company's marketing strategy hardly bothered about the budget restrictions and analysts estimate the company to have spent in the range of $100 million to $300 million in promoting the game. However, the company did not divulge any details of the expenditures.

Analysts opine that the game will have in excess of 2 million subscribers in the initial phase, who will pay $60 for the first month's subscription. Starting from the second month, analysts expect 1.5 million subscribers to opt for the $15 subscription model of EA. This subscription model will expectedly be a regular revenue generator for the company going forward.

EA's arch rival Activision Blizzard Inc. ( ATVI ) is the beneficiary of its own MMO game, War of Warcraft, which has generated a revenue stream of approximately $1 billion a year with a subscriber base of over 10 million. Although the company has reported a decline in subscriptions in the last quarter, the game is one of the company's proficient revenue generating online franchise.

Recommendation

Electronic Arts is a traditional game developer and marketer and has significant exposure in the online gaming, social games and mobile gaming arena. We believe that EA's significant exposure to digital gaming coupled with a strong product pipeline will boost its top-line growth going forward. EA has made significant acquisitions such as Klick, PopCap games and Playfish over the last couple of years to bolster its presence in the social and mobile gaming market.

We believe that the company's high-quality titles, impressive product line, increasing online exposure, social games and portfolio diversification guarantee market share gains over the long term.

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

We therefore have a Neutral recommendation on Electronic Arts over the long term (for the next 3 to 6 months). For the short term (1-3 months), we also have a Hold rating on the stock, as indicated by the Zacks #3 Rank.

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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.


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

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