3 Areas EA Investors Must Watch
The gaming industry as a whole has been undergoing a rough phase due in part to the explosion of mobile devices. While mobile devices don't recreate the full experience of console games, they've shifted spending enough that their impact has been felt by console players like Electronic Arts (NAS: EA) and Activision-Blizzard (NAS: ATVI) .
That's a big challenge for those companies, but your analysis of their potential shouldn't stop there. I created a premium report on EA to help investors look past the headline worries and toward some other areas that could steer EA's future.
Below is an excerpt from the report, laying out three areas investors need to be watching in the coming years. We hope you enjoy.
The three areas you MUST watch
EA investors haven't had it easy during the past few years, but things can always turn for the better. Let's go over a few catalysts for potential growth.
Digital gaming is a knocking opportunity:
Digital is a growing part of EA's business, going from $570 million in revenue in fiscal 2010, $833 million in 2011, and $1.227 billion in 2012. More than doubling in a span of two years is impressive, but it's still less than 30% of the $4.2 billion that EA rang up in revenue in fiscal 2012. EA is targeting $1.6 billion to $1.65 billion in digital revenue in fiscal 2013. Now, "digital" covers a wide range of opportunities, so let's break down how fiscal 2012's revenue materialized. $433 million came from digital downloads sold as extra content and virtual goodies purchased in free-to-play games. That's followed closely by $289 million in subscriptions and ads, $284 million in mobile, and $221 million in full-game downloads. Analysts don't see the strength in digital revenue offsetting the weakening picture in traditional games, but they do see improvement come fiscal 2014. That's only part of the story here, though. Given the high margins that can be had in digital, profitability is expected to grow at a headier clip than EA's top line over the next couple of years.
New consoles are coming:
Nothing cures stagnancy like a refresh, and that's exactly what this industry is hoping will happen here. With the 2012 debut of Wii U ahead of the holiday season -- and the PS3 and Xbox 360 likely heading for updates in late 2013 or early 2014 -- a new generation of hardware could be just what the industry needs. The Wii U isn't raising the bar beyond the "second screen" movement, but there are some neat rumored features for the fourth PlayStation and third Xbox generations that may make it easier for developers to cash in on direct digital sales. Perhaps more importantly, the push for consoles to go digital will benefit publishers by eliminating the resale market. GameStop may make a cozy living reselling secondhand titles, but the developers don't make any money that way.
Second act for Star Wars:
After several years of development, Star Wars: The Old Republic was released in December 2011. The Windows-based PC game was supposed to be EA's answer to Activision Blizzard's World of Warcraft franchise. Despite selling 1 million copies in three days, the number of active gamers peaked at about 1.7 million in early 2012. Tiring of monthly subscriptions and infrequent updates, players began to bolt. EA claims that the breakeven point for the game is just 500,000 players, but in a move to turn things around it lowered prices of the retail game. The strategy is shifting to also offer a free-to-play version without the monthly subscriptions during the third quarter of fiscal 2013 (the period ending in December 2012). After a reported nine-figure investment in developing the title, EA is going to do anything it can to avoid failure.
Looking for more guidance
That was just a sample of our new premium report on EA. If you're weighing whether the company is a buy or sell, the report is an essential resource for investors seeking more information on the company. Not only that, but the report comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. To get started, simply click here now.
The article 3 Areas EA Investors Must Watch originally appeared on Fool.com.
Longtime Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Gamestop. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard. Motley Fool newsletter services have recommended creating a written puts position in Gamestop. Motley Fool newsletter services have recommended creating a synthetic long position in Activision Blizzard. The Motley Fool has a disclosure policy.
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