EA's 'Battlefield 3' Races Forward

| About: Electronic Arts (EA)

Electronic Arts Inc. (ERTS), popularly known as EA, sold over 5 million units of its newly released game Battlefield 3 in the first week of release. The game was released on October 25, 2011 worldwide and has turned out to be the fastest selling video game from EA’s stable. However, EA did not provide any revenue details.

The Battlefield franchise began its journey in 2002 and ever since, fans across the world greeted the game gleefully. Since the launch of Battlefield 1942, the first of the series, EA in association with DICE, the developer of the game from Stockholm, Sweden, released 17 games and expansion packs for the franchise. The series has sold over 50 million units since inception.

However, Battlefield 3 had to tackle a glitch, as last week, on the eve of the game’s release, gamers complained of technical problems. EA reported that the problem was most likely on account of the high volume of hits and also said that the problem had since been fixed..

Battlefield 3 is available for Microsoft Corp.’s (MSFT) Xbox 360 video game and entertainment system, Sony Corp.’s (SNE) PlayStation3 computer entertainment system and PCs.

To rope in more fans for the Battlefield 3 franchise, EA along with Virgin Gaming, organized a tournament named Battlefield 3 Worldwide Conquest Tournament. The tournament is touted to be the largest console videogame competition in gaming history where gamers from around the world can compete.

The tournament and the hefty prize money ($1.6 million cash prize) is a commendable marketing ploy adopted by the company to attract hardcore gamers into buying the game and make a dash for the prize money after honing their skills through online or multiplayer channels.

Besides the Battlefield 3, EA is set to launch its highly anticipated massively multiplayer online game Star Wars: The Old Republic in December. During the holiday season, EA’s Battlefield 3 and Star Wars saga will be pitted against Activision Blizzard Inc.’s (ATVI) Modern Warfare 3 and World of Warcraft franchises.

Although EA surpassed the Zacks Consensus Estimates in its last-reported quarter, losses widened primarily on account of higher marketing expenses in the quarter related to the launch of Battlefield 3. Moreover, the number of title releases in the quarter was also low compared with the year-ago quarter.

Revenues, including deferred revenue of $319.0 million, increased 17.0% year over year to $1.03 billion. The increase was primarily driven by improved Digital and catalogue performance in the quarter. Strong performance of FIFA 12, NCAA Football 12, NHL 12, Madden NFL 12 and The Sims Social propelled growth in the second quarter. FIFA 12 sold nearly 8 million units while Madden NFL 12 sold more than 3 million units in the second quarter.

We believe EA has a strong product pipeline that will drive top-line growth going forward. We believe that high-quality titles, an impressive product line, increasing online exposure, social games and portfolio diversification guarantee market share gains over the long term.

However, we expect margins to remain under pressure in the upcoming quarters due to higher marketing costs related to the Star Wars franchise and also because of the gloomy macro environment in North America and Europe, increasing competition and weak video game results during the last 12 months. Such factors compel us to remain cautious in the near term.

We therefore have a Neutral recommendation on Electronic Arts over the long term (for the next 3 to 6 months). For the short term (1-3 months), we also have a 'Buy' rating on the stock, as indicated by the Zacks #2 Rank.