Electronic Arts Giving Zynga A Run For Their Money

Not only did overall U.S. retail toy sales fall last year, video games fared no better. According to an NPD Group study, video game sales for the year fell 8% to $17 billion. In December 2011 alone, sales of U.S. retail video game fell 21% over the year to $3.99 billion. The decline was attributed to hardware sales falling by 28% and software sales by 14% over the month.

Electronic Arts’ Financials
Despite falling video game sales, Electronic Arts (NASDAQ:EA) surpassed market expectations. Q3 revenues grew 17% over the year to $1.65 billion ahead of the Street’s estimates of $1.62 billion. EPS of $0.99 was also significantly better than the Street’s target of $0.92.

EA’s digital efforts are bearing good results. During the quarter, digital revenues grew an impressive 79% over the year to $377 million. Digital revenue growth was driven by the launch of the highly popular multi-player game Star Wars. Within the first month of its launch, Star Wars acquired 1.7 million active subscribers and sold 2 million units. EA also passed a significant milestone last quarter by surpassing their first ever $1 billion digital revenues for the trailing 12-month period. Net publishing packaged goods revenues grew 10% over the year to $1.23 billion.

For the current quarter, EA projected revenues of $925 million-$975 million, which fell short of the market forecast of $996.3 million. EPS of $0.10-$0.20 also missed the Street’s target of $0.29.

EA Expands Presence in Social Gaming
To continue growth within social gaming, EA recently acquired Sacramento-based KlickNation for an estimated $35 million. KlickNation are a developer of social games and are best known for their Facebook titles Superhero City, and Age of the Champions. Their games attract more than 350,000 monthly active users on Facebook.

Besides acquisitions, EA have also successfully launched the social versions of some of their existing games. Last quarter, they released The Sims Social, the Facebook version of their popular Sims City game. According to analysts, The Sims Social became the second biggest game on Facebook soon after launch and was also a big threat to Zynga’s market as data revealed that 50% of players were originally Zynga players and 30% came from other social games.

EA’s stock is trading at $17.13 with a market capitalization of $5.68 billion. It touched a 52-week high of $26.13 in November 2011. Analysts are optimistic that EA’s efforts to expand within the social gaming and digital segments will stand them in good stead in the future. But they still have a long way to go, considering that the recently listed Zynga has more than 48 million active monthly users and lays claim to six of the top seven Facebook gaming titles.