Electronic Arts Inc. (EA - Analyst Report) recently released FIFA Street, the latest game from the FIFA Soccer franchise. The game captures the essence of “the beautiful game”, ala street style. The game can be played on Sony Corp.’s (SNE - Snapshot Report) PlayStation3 and Microsoft Corp.’s (MSFT - Analyst Report) XBox 360.
FIFA Street, as the name implies, gives the gamers a chance to test their street football skills in 35 locations around the world with different modes (Panna Rules, Last Man Standing and World Tour story mode). The game won 9 points out of 10 by Official Xbox Magazine, which commended it by saying that FIFA Street is “setting the standard for all other sports games”. Meanwhile, PlayStation: The Official Magazine described the game as “chaotic, tense, and above all, super fun”.
EA SPORTS’ FIFA franchise has attained an almost cult status among soccer fans. Thus, the release of the latest version is not only going to amplify the present craze but also rake in the revenues for the company. Interestingly, more than 2.1 million gamers have downloaded the demo version of the game, making it the second-most downloaded demo. It is FIFA Soccer 12, also from EA SPORTS’ stable that currently holds the top rank in that list, according to Sony and Microsoft.
EA’s last reported quarter was an impressive one, primarily driven by robust digital revenues and strong performances from Battlefield 3, Star Wars: The Old Republic (both launched during the holiday season) and FIFA 12.
EA’s pipeline consists of high-quality titles and with the increasing online exposure, 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 International Game Technology (IGT) may act as headwind going forward.
Moreover, the whole video game industry has been plagued by weak consumer spending and troubled economic conditions. According to market research firm, The NPD Group, US sales for February 2012 was down 20.0% from the comparable year-ago period to $1.06 billion. In February, Electronic Arts’ much-awaited Kingdoms of Amalur: Reckoning took the fourth position among the top ten games. However, EA’s Battlefield 3 seemed to have lost its sheen and plummeted to the 10th spot from the fifth position that it held in the preceding two months.
Despite the dismal figures in February, analysts tracking the video game industry believe that few big game launches from bellwether publishers could boost revenues in March. Some of the games that are to be launched in March are Nintendo’s Mario Party 9, Konami Corp.’s Silent Hill Downpour and Capcom’s Resident Evil: Operation Raccoon City. Incidentally, EA’s much-coveted Mass Effect 3 has already been released and the company said that it has shipped 3.5 million units of the game in the first week of its release.
Additionally, we believe that companies with significant exposure to the digital business will stand out even in this sluggish market. Moreover, new game releases and improvement in consumer spending will act in favor of the industry.
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.