More Publishers Opt for EA's Origin

Electronic Arts Inc.’s (EA - Analyst Report) bid to go digital is being well-complemented by its online game download platform, Origin. Recently, seven other game publishers have chosen Origin for download and purchase of titles published by the company. With the addition of these publishers, Origin now has 21 publishers on board, whose games are being made available through its online platform.

Apart from Warner Bros., Interactive Entertainment, THQ Inc. (THQI - Snapshot Report), Capcom, Trion Worlds and Robot Entertainment that were already present, Origin’s newest additions include Focus Home Interactive, Iceberg Interactive, Strategy First, Macro Games, Selectsoft and Legendo Entertainment.

Origin was launched in June 2011 and since then it has roped in 9.3 million users. The top selling games that are available through Origin include the recently launched MMO Star Wars: The Old Republic, Battlefield 3, Need for Speed The Run and the ever-popular FIFA 12 among other renowned games from EA’s stable. Additionally, popular games from other publishers include Warner Bros.’s Batman: Arkham City, Saints Row: The Third from THQ and Rift from Trion Worlds.

Incidentally, approximately 40% of sales of Star Wars: The Old Republic was through Origin. Moreover, in the recently concluded quarter, EA’s full game downloads reported a staggering 442.0% yearly growth, which was primarily driven by downloadable content from Origin.

Additionally, EA’s digital revenue surged 79.0% year over year to $377.0 million in the third quarter and contributed 23.0% of total revenue, increasing significantly from 15.0% reported in the year-ago quarter. Strong growth from mobile and other handheld revenues and downloadable content (DLC) drove digital revenue growth in the reported quarter.

Gamers’ preferences have been changing to the digitized format and playing games through smartphones and tablets continues to gain popularity. Moreover, online social games have been changing the gaming industry rapidly.

Although consumers continue to buy games that can be downloaded to consoles or computers, digital downloads, used game sales and game rentals are gaining popularity. We believe that given EA’s variety of titles and massive fan following, it is better equipped to gain traction in the digital format than most of the other new players.

EA has been shifting its focus to the digital format and combined with its diversified portfolio and strong product pipeline, it is expected to drive top-line growth going forward. We believe that its high-quality titles, increasing online exposure and social games guarantee market share gains over the long term.

However, the gloomy macro-economic environment, increasing competition and weak video game sales results over the last 12 months compel us to remain cautious in the near term. Competition from Activision Blizzard Inc. (ATVI - Snapshot Report), Zynga Inc. (ZNGA - Snapshot Report) and new entrant International Game Technology (IGT - Analyst Report) may act as the other 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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