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European Acquisitions And Tie-Ups Position Electronic Arts To Capture Digital Population

Posted on Wednesday, Mar 23rd 2011

A recent Games Purchase Drivers 2010 report published by The NPD Group revealed that an average of 71% of games bought by consumers in the U.S. comprised physical games, and 29% were digital games. In February of this year, total game industry sales rose 3% over the year to $1.36 billion. Sales of video game hardware increased 10% to $0.47 billion, while sales of software fell to $0.60 billion from $0.63 billion a year ago. Sales of video game accessories continued to grow driven by the growing popularity of Microsoft’s Kinect. Video game accessory sales increased from $0.21 billion a year ago to $0.26 billion.

Electronic Arts’ Financials
Gaming publisher, Electronic Arts (NASDAQ:ERTS) sees growth in the coming quarters. Q3 revenues of $1.41 billion fell 2% over the year compared with the market’s expected revenues of $1.38 billion. For the quarter, EPS of $0.59 was higher than the Street’s expected $0.57.

EA’s focus on digital revenues has stood it well. For the past quarter, digital revenues grew 39% over the year and 20% over the quarter to $0.211 billion. The company is looking to end the current fiscal year with $750 million in digital revenues.

EA projects current quarter revenues of $0.975 billion–$1.075 billion with EPS of $0.15–$0.25. The Street was looking for revenues of $0.937 million. For the year, the company raised its revenue guidance to $3.68–$3.78 billion with EPS of $0.60-$0.70. Analysts were projecting revenues of $ billion with EPS of $0.58.

Electronic Arts’ Digital Focus Continues
In line with of its digital focus, the company recently acquired Chillingo, a U.K.-based games publisher, for $20 million. Chillingo specializes in digital distribution across multiple platforms and has published games such as the famous Angry Birds and Cut the Rope. Chillingo’s games have been published for the iPhone, iPod touch, iPad, Wii, PSP Mini, and Xbox arcade.

It also tied up with a unit of Bigpoint Games, a German publisher of online games that specializes in browser-based games and sales of virtual goods, to distribute its games globally. EA will push its Play4Free portfolio of games through the tie-up. Lord of Ultima is expected to be the first title up for distribution. Play4Free games were launched by EA in 2008 to let users play certain titles free, with revenues being generated by using in-game advertising and micro transactions, with the aim of attracting players to the company’s digital game titles.

Later this year, Electronic Arts is expected to release its subscription-based massively multiplayer online (MMO) game. Both analysts and the company expect to see big margins through the release of the game, which is expected to turn profitable at 500,000 subscribers and is aimed the MMO player population, which is estimated to be 12 million worldwide.

The stock is trading at $18.82 with market capitalization of $6.29 billion. It touched a 52-week high of $20.24 in April of last year.

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