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Consistent with its strategy of expanding into the social gaming market,leading video game developer and publisher Electronic Arts Inc. (EA - Analyst Report) recently launched a new social game called Word Derby. The multiplayer turn-based game is currently available at Apple’s (AAPL - Analyst Report) App stores and can be played on iPhone and iPad.

Developed by social gaming apps developer Mention Mobile and published by EA’s Chillingo division, Word Derby can be played by a maximum of four players. They are allowed to choose any of the four horses namely “traditional derby horse,” “flashy unicorn,” “candy cane piñata” and “fire breathing dragon” to join the derby race.

Players need to create words in order to win power-ups and bonuses that will help their horses to win points. A player reaching the 200 mark first wins the derby trophy and his/her achievement will be displayed on Facebook (FB - Analyst Report).

Word Derby allows virtual gambling, which is the game’s additional attraction. Players are allowed to place wagers on their horses by using the Word Derby’s in-app currency, which is its primary revenue earning source.

Word Derby adds to EA’s expanding word-based gaming portfolio that includes popular games such as Word Smack. We believe that the popularity of the EA brand, coupled with its availability on Apple devices such as the iPhone 5, will benefit the new game going forward.

We believe that EA will continue to develop and publish social games particularly due to the staggering growth expectation of the sector. According to research firm IBISWorld, social gaming is one of the fastest growing industries in the United States. The sector is expected to earn $4.5 billion in revenue for 2012. Revenue is forecasted to reach $12.3 billion by 2017.

Although the market is getting overcrowded with the entry of new developers thereby increasing competition for established players such as EA, Zynga Inc. (ZNGA - Snapshot Report) and The Walt Disney Company (DIS - Analyst Report), we believe that EA’s innovative product pipeline (that involves social & mobile versions of popular franchises) will provide it a significant competitive advantage going forward. Notably, EA is set to release 31 new games for the social, mobile and free-to-play platform in fiscal 2013.

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.

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