Electronic Arts On Digital Gear

A recent PricewaterhouseCoopers report for 2010–14 predicts the global entertainment and media (E&M) market to grow 5% annually to $1.7 trillion by 2014, with the U.S. market to grow 3.8% annually to $517 billion in 2014 from $428 billion in 2009. Globally, the online and wireless video game market will grow 10.6%, compounded from $52.5 billion in 2009 to $86.8 billion in 2014, making it the second-fastest-growing segment of E&M behind wired/mobile Internet advertising.

The trend is a big reason behind the focus on digital at Electronic Arts (NASDAQ:ERTS), which reported a profitable Q4 recently. Revenues for the quarter were $979 million compared with $860 million last year. Sales were driven by performance of the titles Battlefield: Bad Company 2, Mass Effect2, and Dante’s Inferno and by growth in the company’s digital business. EPS of $0.07 was significantly higher than the loss of $0.37 per share suffered a year ago. The market was expecting revenues of $835.4 million with EPS of $0.05.

EA ended the year with revenues of $3.654 billion compared with $4.212 billion earned a year ago. For the year, the company earned $0.44 per share compared with a loss of $0.30 per share in the previous year.

EA has 19% of the video game market share and managed to improve its position by 1.7 percentage points over the previous year. During the year, the company was ranked as the leading publisher on Playstation 3, Xbox 360, PC, and Playstation 2 and the leading third-party publisher on the Wii and PSP platforms.

By segment, digital revenues of $570 million for the year contributed 14% of total revenues and grew a significant 33% over the year. The digital segment, which includes mobile and handheld device games, online, and downloadable games for traditional titles, is a high-focus segment for EA, which is following a strategy of launching fewer but bigger games in the segment to drive margins. EA already has five games for the iPad on offer, and during the year it launched 37 iPhone games and 50 mobile titles. Their mobile games are priced in the range of $0.99 for games such as the FIFA 10 for the iPhone to $6.99 for Sim3 and Rock Band. Even with the high volume, quality remains a focus, and four of EA’s games are among the top 10 iPad games. The company had 1.8 million total paying subscribers in the quarter, which it ended with over 58 million registered users, up 18% from the prior quarter.

EA’s online gaming destination, Pogo, remained one of the most engaging destinations and generated 5.4 billion minutes of play in March. In that month, the number of U.S. monthly unique visitors for Pogo grew 9% over February, compared to an overall flat month for the market. Total online gaming minutes grew 8% versus 2% growth for the market. With a play rate among daily and monthly active users of 30%, Pogo is ranked with the best performing social network games. Recently, EA launched Pogo Facebook Beta, an application that includes 12 games including Poppit! and Word Whomp.

The company’s other social gaming site, Playfish, was the number two site in the market. During the quarter, Playfish had two of the top 10 Facebook games. In March, it launched Hotel City, which already boasts of 13 million monthly active users and is among the top 15 Facebook games. For April, Playfish recorded 59 million monthly active users with daily active users growing 23% since January.

During the current year, EA will continue to introduce new service and product features for PC and console game players. There should also be a number of digital service launches, such as the Need for Speed World, Tiger Woods Online, and FIFA Online. With FIFA fever raging as the Netherlands and Spain prepare to face off at the World Cup final, EA has already sold over 10 million units of its FIFA 10 game.

For 2010, the company aims to grow its total digital revenue by another 30% over the year. EA projects Q1 revenues of $710 million–$750 million with a loss per share of $0.35–$0.40. For the year, the company projects revenues to be $3.35 million–$3.60 billion with EPS of $0.50–$0.70.

The stock is trading at $14.95 with a market capitalization of $4.93 billion. It touched a 52-week low of $14.06 earlier this month.