(ERTS) Electronic Arts to Ship New Adventure Pack

Video game developer and publisher, Electronic Arts Inc. (ERTS), better known as EA, announced that its new adventure game The Sims Medieval: Pirates and Nobles will be available in stores from August 2011.

Developed by The Sims Studio, the first adventure pack to The Sims Medieval will run only on personal computers and Apple Inc.’s (AAPL) Macintosh computers.

The new adventure pack introduces players to new quests, treasure hunting, and hundreds of new objects for their medieval kingdom.

Players have the option of playing any character in the game. The game features a new treasure hunt, which challenges players to find hidden objects and search for desirable rewards.

The Sims has been one of the most popular franchises published by The EA Play Label of Electronic Arts. The Sims franchise celebrated its tenth anniversary in 2010 and has sold more than 125 million units till date.

We believe the success of The Sims franchise demonstrates EA’s continuous endeavor to produce quality products. EA delivered 15 titles rated 80 or above by Metacritic in fiscal 2011.

Moreover, EA has reduced its exposure to the declining packaged goods sector. EA is focused on developing promising intellectual properties (IP), which possess the ability to generate higher revenues and profits for the company. In order to achieve the target, the company has reduced the number of title releases to 22 for fiscal 2012 from 36 in 2011, 54 in 2010 and 67 in 2009.

Consequently, the company has decreased the distribution of low-margin games as well as reduced its exposure to the declining music games genre.

EA is trying to gain a strong foothold in the emerging digital and social network market. With increasing adoption of smartphones and portable devices, EA intends to develop its digital distribution business.

EA is also trying to expand its footprint in the social gaming market. EA has signed a five-year agreement with FaceBook to expand its reach on social networking sites and deliver an enhanced gaming experience to gamers. EA recently partnered Procter & Gamble Co (PG) to feature the latter’s Bounty products in the social game, Playfish Restaurant City.

With the advent of the gaming titles getting a digitized avatar, EA has launched Origin, its first online service to sell its downloadable titles directly to customers. We believe that EA is better equipped than its competitors to gain traction in the digital format with its variety of titles and massive fan following.

Recommendation

We believe Electronic Arts has a strong product pipeline for fiscal 2012 and beyond, which will drive its top-line growth going forward. We believe that the high quality titles, impressive product line, increasing online exposure, social games and portfolio diversification guarantees market share gains over the long term.

However, cut throat competition from Activision Blizzard Inc. (ATVI), Take-Two Interactive Software Inc. (TTWO) and from social network company Zynga, may act as headwinds going forward.

We have a Neutral recommendation on Electronic Arts over the long term (for the next 6 to 12 months). Currently, Electronic Arts has a Zacks #3 Rank, which implies a Hold rating in the short term.

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