Video game developer and publisher, Electronic Arts Inc. (EA - Analyst Report) is expanding its mobile product portfolio for Apple’s (AAPL - Analyst Report) iOS platform. EA recently gave a live demo of its upcoming mobile game Real Racing 3 on latest iPhone 5. The game is slated to release later this year on both iPad and iPhone 5.
iPhone 5’s large 4” retina display screen along with better resolution (pixel size : 1136-by-640), powerful processors (A6) and enhanced graphical qualities add a new dimension to EA’s racing game.
The game’s graphical quality is at par with console-based games. The new iPhone graphic chips allow racers to use rear-view mirrors of their car, which helps them to keep a track of their competitors at the time of racing.
Moreover, Real Racing 3 supports a new GameCenter feature called “time shifted multiplayer”, which allows players to challenge their friend’s performance on the same racing track, even if they are not playing at the same time. We believe that the new game will boost EA’s mobile subscriber base going forward.
Lately, mobile games have been a major source of revenue for EA. In the recently concluded first quarter of 2013, revenue from smartphones & tablets surged 86.0% year over year and contributed 16% of digital revenue. EA’s dominant market share position on iPad and iPhone was a major contributor to this significant growth.
We believe that the iPhone 5 will be a major success for Apple, particularly due to its impressive handset features as well as enhanced gaming capabilities. EA announced that it will introduce new games for iPhone 5 in the near term, which will boost its market share going forward.
We believe that consumers are increasingly spending more on smartphones and portable devices (such as the iPad) compared to traditional devices for playing online games. According to market research firm NPD, mobile now represents the largest gaming segment, as the number of gamers jumped 9% to 22% over the last 12 months.
We believe that this bodes well for EA, as the company continues to open 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. Further, EA’s innovative product pipeline will boost its market share in the online gaming market over the long term.
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.