Video game developer and publisher, Electronic Arts Inc. (ERTS), better known as EA, announced that EA Sports’ latest soccer game FIFA Soccer 12 will hit retail stores on September 27, 2011.
EA also announced that the U.S. soccer star Landon Donovan will be gracing the front cover of FIFA Soccer 12 along with Mexican counterpart Rafael Márquez. Also, England and Manchester United’s popular striker Wayne Rooney will share the space on the cover along with the two American soccer stars.
Star footballer Wayne Rooney will appear on the cover of the game for the first time in North America. Donovan and Márquez, both play Major League Soccer and were also selected in the MLS All-Star team for 2011.
EA believes that the presence of these three eminent players on the cover will boost the sale of the game in North America. FIFA Soccer 12 has already won the prestigious 2011 E3 Game Critics award and is also a prestigious winner of the 20 “Best Sports Game of E3” awards.
FIFA Soccer 12 runs on the new Player Impact Engine, which delivers real-world movement on the soccer pitch. FIFA Soccer 12 also introduces EA SPORTS Football Club, a live service available at no additional charges that connects players to the real-world game with fresh, regularly updated content, enabling them to cheer for their favorite club and connect and compete with their friends and millions of players across the globe.
FIFA Soccer 12 will be available in 18 languages and in over 51 countries. The game will be available for every major entertainment system including Sony Corp.’s (SNE) PlayStation 3, Microsoft Corp.’s (MSFT) Xbox, Nintendo’s Wii and 3DS and Apple Inc.’s (AAPL) iPhone, iPad and iPod touch. The game will also be available for digital download on PC at origin.com.
FIFA Soccer has been one of the most popular franchises of EA Sports. FIFA 11 was among the top 20 selling games in the western markets in the first quarter of 2012. At the end of the first quarter, EA had sold approximately 15 million units of FIFA 11.
We believe that the success of the FIFA franchise demonstrates EA’s continuous endeavor to produce quality products. EA delivered 15 titles that were rated 80 or above by Metacritic in fiscal 2011.
Moreover, EA has reduced its exposure to the declining packaged goods sector. EA is focused on developing intellectual properties (IP) that possess the ability to generate higher revenues and profits for the company. In order to achieve the target, the company has reduced the number of title releases to 22 for fiscal 2012 from 36 in 2011, 54 in 2010 and 67 in 2009.
Consequently, the company has decreased the distribution of low-margin games and has also reduced its exposure to the declining music games genre.
EA is trying to gain a strong foothold in the emerging digital and social network market. With increasing adoption of smartphones and portable devices, EA intends to develop its digital distribution business. EA launched Origin, its first online service to sell its downloadable titles directly to customers.
EA’s digital revenues (39.9% of the total revenue) jumped 11.2% year over year to $209.0 million in the first quarter, primarily driven by growth in mobile and other handheld revenues and downloadable content (DLC). We believe that EA is better equipped than its competitors to gain traction in the digital format with its variety of titles and massive fan following.
Recommendation
We believe EA has a strong product pipeline for fiscal 2012 and beyond, which will drive its top-line growth going forward. We believe that the high quality titles, impressive product line, increasing exposure to online and social games and diversification of portfolio guarantees market share gains over the long term.
However, interest expense will most likely weigh on the company’s profitability, due to the recent issuance of debt related to the PopCap Games acquisition. This, along with competition from Activision Blizzard Inc. (ATVI) and Take-Two Interactive Software Inc. (TTWO) are the primary headwinds 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 #2 Rank, which implies a Buy rating in the short term.
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