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Electronic Arts Strengthens Commitment To Mobile With New Acquisitions

Posted on Tuesday, Jul 12th 2011

According to research by NPD Group, U.S. retail video game sales fell 14% over the year in May 2011 to $743.1 million. Console game sales fell 19%, accessory sales fell 6%, and hardware sales were down 5% over the year. In the recently held Electronic Entertainment Expo (E3), gaming industry players formally recognized the importance of the trend of digital and social gaming formats. During the recent quarter, leading game publisher, Electronic Arts (NASDAQ:ERTS) also made several acquisitions to strengthen their digital and mobile presence.

Electronic Arts’ Financials
EA’s Q4 revenues grew 17% over the year to $995 million. Earnings expanded significantly to record EPS of $0.25 compared with $0.07 a year ago. The market was expecting revenues of $924 million with EPS of $0.22. The company ended the year with a loss of $0.84 per share compared with the loss of $2.08 per share last year. Revenue for the year, however, fell from $4.16 billion last year to $3.83 billion.

EA saw good traction in Digital revenue, which grew 72% over the year to $268 million for the quarter. They ended the year with digital sales of $833 million, reporting growth of 46% over the year. During the quarter, Publishing and Packaged goods revenue grew from $653 million to $686 million, while Distribution packaged goods revenue remained flat at $41 million.

For the current quarter, EA projected non-GAAP revenue of $460 million to $500 million with a loss of $0.44 to $0.49 per share. The market was looking for revenue of $518 million with a loss of $0.36 per share. EA is projecting annual revenue of $3.75 billion to $3.95 billion, compared with the Street’s estimates of $3.94 billion. Earnings for the year are projected at $0.70 to $0.90 a share, compared with the analyst estimate of $0.86 per share.

Electronic Arts’ Digital Focus
According to EA’s management, the growing importance of multi-device and digital games has transformed the earlier number of 200 million console players to 1.5 billion consumers who play games on multiple devices. The company expects digital sales to cross $1 billion in the current financial year. EA is focusing on the digital revenue growth by incorporating digital products in their games. For instance, they recently sold digital parrots that perch on the soldiers in the game “Battlefield Heroes.” They reported sales of 20,000 parrots at $10 each in the limited-time offer.

Additionally, they are also stepping up their acquisition pace. EA recently acquired Australia-based Firemint Pty Ltd.. Firemint is known for the their iPhone and iPad games which include “Flight Control” and “Real Racing,” for an undisclosed sum. Earlier this quarter, EA acquired Mobile Post Production Inc., a leading developer of cross-platform mobile games.

EA is also rumored to be evaluating a more than $1 billion acquisition of PopCap Games to break into the mobile and social gaming space. Seattle-based PopCap is the owner of popular smartphone games including “Planets vs. Zombies,” “Bejeweled” and “Peggle.” PopCap’s revenues are estimated to be in the range of $100 million to $150 million for the year. Their games have been downloaded more than 1.5 billion since their launch and have recorded more than 1.1 billion of online gaming hours.

Electronic Arts’ Immersive Advertising
Like Zynga, EA has begun immersive advertising campaigns. They recently tied up with Procter and Gamble to introduce marketing of P&G’s Bounty brand paper towels within the game challenges. Bounty’s products will appear in “Restaurant City,” the social game, where players create and manage virtual restaurants with the help of their Facebook “friends,” who become waiters and chefs. Addditionally, game players who mention “Like” on the Bounty Facebook page are rewarded with a Bounty Tower that is displayed at their restaurants and adds five popularity points to their restaurants.

The company’s stock is trading at a 52-week high of $24.39 with market capitalization of $8.1 billion.

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