EA's SimCity Social Now Online

Consistent with its strategy of expanding its social gaming portfolio,leading video game developer and publisher Electronic Arts Inc. (EA - Analyst Report) recently announced that its simulation game SimCity Social is now available on Facebook (FB).

Developed by Maxis and Playfish (both EA studios), the SimCity Social app provides players with easy-to-use tools that allows them to create and build their own cities. Being a social game, players are allowed to visit their friends’ cities, can use their resources to complete tasks and can also choose to build friendly relationships among themselves.

Over the last couple of years, EA has taken several initiatives to gain traction in the popular segment of social gaming through various games such as The Sims Social, Monopoly Millionaires, FIFA Superstars and Scrabble. The SimCity Social is the latest offering from EA in this space.

According to market research firm eMarketer, there will be approximately 76.5 million social gamers in the US by the end of 2012, of which 48.0% will be social network user. Social networks such as Facebook have become the major destination for social gamers as well as game developers.

Social game makers such as Zynga (ZNGA - Snapshot Report), Rovio and Mensing have successfully utilized the Facebook platform to garner significant customer base and revenue over the last couple of years. However, among all these developers, Zynga had been the most successful to date.

As of March 31, 2012, Zynga alone had 292 million players engaged on its various games in Facebook. Zynga had eight of the top ten games on Facebook, based on daily active users (DAUs). Currently, Zynga derives 85.0% of its traffic and 92.0% revenue from Facebook.

In order to consolidate its position in the rapidly growing social gaming sector, EA signed a five year agreement with Facebook back in 2010. However, EA’s success rate on Facebook has been mixed.

Despite The Sims Social garnering significant customer base, its other social games were unsuccessful. EA believes that the new SimCity Social will be able to boost its customer base further and provide significant competition to Zynga’s CityVille going forward.

Our Take

We believe that EA is diversifying its revenue generating base. With rising consumer spending on digital gaming (social, mobile, casual), we remain optimistic on EA’s growth trends over the long term. The company is opening up new fronts in social, mobile and online gaming based on its well known franchises, which is expected to boost its customer base going forward.

We believe that EA’s innovative product pipeline will boost its market share in the online gaming market. Moreover, EA’s strong focus on the digital segment will help it stand out even amid sluggish market conditions going forward.

However, the highly fragmented video game market continues to witness increased competitive pressures, which are hurting its overall profitability. This compels us to remain Neutral on the stock over the long term.

Currently, EA has a Zacks #3 Rank, which implies a Hold rating in the near term.