Electronic Arts (ERTS: Charts, News), the second largest pure video game publisher in the world, made headlines this week when it surprisingly emerged as the second largest social game maker on the Internet, trailing only behind industry leader Zynga. Electronic Arts had previously purchased Playfish and PopCap, both dominant game makers on Facebook, for $250 million and $750 million, respectively. This week, it announced that its new Facebook game, The Sims Social’ – an online version of its best-selling Sims franchise – had become the fastest growing social game ever, reaching a total of 4.6 million active users within a week. Combined with its other games, Electronic Arts now boasts 34.6 million active (daily) users on Facebook and other social gaming networks.
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The company’s social games also include venerable franchises such as Bejeweled’ and Plants vs. Zombies’. Electronic Arts has a total of 72.3 million registered social gaming users across the Internet, which is still a third of market leader Zynga’s 275.4 million users, but EA’s gains have definitely caught the market’s attention. Mensing and Microsoft (MSFT: Charts, News), the third and fourth largest social game makers, have approximately 50 million each, while fifth place Wooga has 38 million. As The Sims’ has demonstrated, Electronic Arts is also well poised to introduce its massive library of PC and console games to Facebook in lighter, browser-friendly versions.
Electronic Arts, which is also well known for its more mainstream titles – such as Madden NFL, FIFA Soccer, Battlefield and Mass Effect, to name a few – also made a surprisingly announcement that NHL 12, the latest in its long-running hockey franchise, broke records with the biggest launch week in franchise history with over $27 million in retail sales worldwide. Electronic Arts’ sports segment, EA Sports, was quick to announce that its hot NHL title would also be available on Facebook in the form of NHL Superstars, a social networking version of a fantasy hockey league in which players can manage their own fantasy teams and compete against their friends. The game will be launched in October and is expected to be a big hit. EA’s Facebook games will not only complement its full-size games, but will also be used to promote future EA titles on Facebook as well as PCs and consoles. In this regard, Facebook games will serve as a free viral advertising channel for EA’s own games as well.
More importantly, EA’s newfound success on Facebook will give it an edge against arch-rival Activision Blizzard ATVI, which has dominated Internet gaming for nearly a decade with its World of Warcraft and Call of Duty franchises. However, Activision’s flagship titles are cash cows, with solid, profitable subscription-based systems, while EA’s social games are not. While Activision recently announced a subscription-based Call of Duty, much to the chagrin of long-time gamers, EA announced a partnership with Aeria Games, a leader in free-to-play online games, to provide gamers with free online play for its new Battlefield title, Battlefield Heroes’. On Facebook, EA must rely on purchases of virtual goods within the games and money from advertisers to monetize these lighter games. However, based on Zynga’s past success in the arena, with Mafia Wars, Cafe World and countless other titles, investors should remember that lots of people on the Internet are more than willing to fork over their hard earned cash for virtual goods.
Many analysts are now recognizing the inherent value in EA shares as its Facebook venture pays off, with several raising price targets to $30. At $22, EA trades with a forward P/E of 19 and a PEG ratio of 1.55.
Other News About ERTS
Analyst: EA on track to having No. 1 Facebook game
The Sims Social’ is a huge hit.
EA and Aeria Games Team Up to Launch Battlefield Heroes on Aeria Games Network
EA continues its promise to keep multiplayer free with a partnership with Aeria.
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Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.
