Novice Investing - The Arts of Gaming on EA

Date: Wednesday 17th 2010f March 2010 01:31:00 AM

The Arts of Gaming on EA - 05/06/2009

By: Hari Wibowo

		Electronic Arts Inc. 209 Redwood Shores Parkway Redwood City, CA 94065 United States

Shares of Electronic Arts Inc. (ERTS), the largest game developer in the US, has followed the rest of the industry down when a report published that video games sales plunged 17% in March compared to previous year. Video game sales has increased significantly this past decade as new gaming console keeps gamers entertained. Meanwhile, the biggest recession since World War II has kept discretionary purchase such as video games into a grinding halt.

Electronic Arts released new games from the three valuable franchises that generate significant sales: 1) MySims Kingdom, 2) NBA Live, 3) Battlefield. New games slated to be released in 2009 are 15 games with notable games such as Mirror's Edge, Dead Space, SimAnimals, FaceBreaker and SPORE.

The gaming industry generated a revenue of $ 33 Billion in 2008. Electronic Arts strive to increase its segment share to 20% from mid teens currently. That along with the desire to increase digital revenue (from online gaming platform pogo and T-mobile partnership among others), will help Electronic Arts to increase revenue in the near future. The company believes that audience for interactive games will grow from several hundred millions today to two billions in the next decade. That is huge and Electronic Arts is poised to be in the middle of it.

Meanwhile, Electronic Arts has to be content with a net loss for the fourth quarter ending in March 2009 which was reported this week. Electronic Arts reported a net loss of $ 42 Million or 13 cents per share during the quarter. The company relied on games such as Skate 2, Rock Band 2 and Left 4 Dead to drive its result. Meanwhile, the highly anticipated release of Sims 3 is delayed until June, weighing down on results.

Electronic Arts balance sheet is rock solid to withstand against any prolonged downturn. Latest available data shows a $ 2.3 Billion of positive net cash ( $ 7.15 per share) and market-leading products. While it posts a net loss these past two years, Electronic Arts can bounce around with its many different blockbuster products on its current lineup and future pipeline. For now, Electronic Arts share price has risen to $ 20 per share, which is less attractive considering its current earning forecast ($ 0.96 per share) and positive net cash ($ 7.15 per share). If share price goes significantly lower, patient investors may start accumulating while they wait for a turnaround.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Electronic Arts Inc. (ERTS) or any other securities.

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