Electronic Arts Scores Another Win

Motley Fool Staff
Updated

Looks like Electronic Arts (NAS: ERTS) racked up another win. The company sold 5 million copies of its latest first-person shooter Battlefield 3, setting a record as the company's fastest-selling game. Although the number is rather small when compared to the 7 million copies of last year's Call of Duty: Black Ops that Activision Blizzard (NAS: ATVI) moved on day one, Battlefield's big first week marks another success in a string that make EA a company worth watching.

Racking up achievements
EA's win streak started this summer when it beat out Farmville developer Zynga to acquire PopCap Games, the developer of addictive time-stealers like Bejeweled and Plants Vs. Zombies. The acquisition should help EA fortify its position in the fast-growing casual game market. In the time since the acquisition, the company has had a lot to celebrate:

  • EA launched The Sims Social, which quickly became the second most popular game on Facebook and established EA as Zynga's top competitor.

  • First week sales of Madden 2012 increased 10% year over year to 1.4 million.

  • FIFA 2012 first week sales increased 23% to 3.2 million copies.

  • Second-quarter revenue from smartphone games increased 87% year over year.

  • Over 6 million PC gamers have downloaded Origin, the company's digital game store.

Getting used to the new game map
Overall, I like EA's strategy for navigating the new gaming market. The company plans to transform its major franchises from seasonal blockbusters into year-round money makers. For console titles this means more downloadable content and expansion packs. The company will also launch Star Wars: the Old Republic, a massively multiplayer online role playing game, for the PC in December. If the game is successful, it will give EA a steady revenue stream which should help improve margins in the long run.

It's also good to see the company taking social and mobile gaming seriously. While I still maintain that these new platforms are expanding the gaming market rather recreating it, the opportunities they offer publishers are too big ignore.

Why I'm staying on the sidelines
That being said, I agree with my fellow Fool Anders Bylund. At the moment, EA isn't a buy. In spite of the good news, the company's earnings decreased year over year and cash flow from operations moved further into negative territory. Although I suspect that EA will eventually adapt to the new gaming environment, I think investors might find a better opportunity in a company like Majesco Entertainment (NAS: COOL) which is both cheaper and better positioned to benefit from the casual gaming market.

However, I do think it's worth your time to keep an eye on Electronic Arts. Regardless of how the videogame industry changes, the company should remain a major player. And if the company's winning streak continues, it could become a buy. In the meantime, click here to add Electronic Arts to your watchlist and stay up to date on all the latest news and analysis.

At the time thisarticle was published The Motley Fool owns shares of Activision Blizzard. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of and creating a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Fool contributor Patrick Martin owns shares of Activision Blizzard. You can follow him on twitter @TMFpcmart03. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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