EA's Pogo for Gogo Fliers

Pogo, the online gaming portal of  Electronics Arts Inc. (EA - Analyst Report), will be providing Gogo's new in-air multimedia platform with three of its most popular games for in-flight entertainment.

Gogo is an in-flight internet provider, enabling flyers to get online through their laptops and other Wi-Fi enabled devices during flights. Moreover, through its new in-air multimedia platform, passengers can now have free access to classic Pogo games such as First Class Solitaire, MONOPOLY and Mahjong Safari. Gogo’s online services will also ensure that passengers can log in to Pogo.com for other varied games available on the website.

Pogo is one of the leading providers of casual gaming with more than 100 games in its portfolio. The collaboration ensures flyers in-flight entertainment, increasing the popularity of Pogo manifold.

The Social and Digital Gaming Market

According to market research firm eMarketer, the U.S. social and casual gaming market is expected to be worth $2.18 billion in 2012. Most of the social games are free to play and generate revenue primarily through the in-game sale of virtual goods.

eMarketer expects revenues from virtual goods to contribute heavily through 2012. Advertising spending is expected to grow more quickly in 2012, and with advertising spending expected to increase 41% in 2012 over the 2010 level. Moreover, market intelligence firm In-Stat expects the worldwide market for virtual goods to double in 2014 from $7.3 billion in 2010.

Additionally, the shifting preference toward the digital format can be assessed by the rise in sales through digital media and spending on social and mobile games. With consumer spending on mobile games and social networking games rising, we believe that publishing companies with an exposure in these segments would be better positioned for growth.

Recommendation

EA has been shifting its focus to the digital format and with its diversified portfolio and strong product pipeline, is expected to generate strong top-line growth going forward. We believe that high-quality titles, along with increasing online exposure, particularly in the social gaming genre 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 International Game Technology (IGT - Analyst Report) may act as the other headwind going forward.

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

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