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EA Strengthens Mobile Presence With Industrial Toys Buyout

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Electronic Arts (EA - Free Report) recently announced the acquisition of Industrial Toys, an independent game studio based in Pasadena, CA for an undisclosed amount.

Industrial Toys’ founder, Alex Seropian, with his 14 member team, has been credited with well-known mobile games such as Midnight Star and its sequel, Midnight Star: Renegade.

Leveraging Seropian’s expertise, EA is now expected to create new mobile gaming content that will help the company attract core mobile gamers going forward.

Acquisition to Deepen Roots in Mobile Space

EA’s acquisition is in line with the ongoing shift from physical to digital versions of video games. As consumers are increasingly spending more on smart phones and portable devices compared to traditional devices for playing online games, mobile games have become one of the fastest growing segments in the video game market.

The trend is evident from market research Newzoo’s data, which states that; more than 50% of the revenues will come from mobile games by 2020. Therefore, to cash in on the booming mobile games market, EA plans to expand its mobile portfolio after the success of Star Wars: Galaxy of Heroes and FIFA Mobile.

The company also launched The Sims Mobile worldwide on iOS and Android devices in the March quarter. Notably, The Sims is one of the most important revenue generators for EA with 80 million active Sims players across PC and mobile in fiscal 2018. Additionally, it is also gearing up to release a few more mobile games in the coming months.

Electronic Arts Inc. Price and Consensus

Electronic Arts Inc. Price and Consensus | Electronic Arts Inc. Quote

Cloud Gaming to Improve Mobile & Portable User Engagement

In May, EA acquired the cloud gaming technology assets and personnel of a wholly owned subsidiary of Gamefly Inc. Cloud gaming or streaming of video games or Gaming-as-a-Service (GaaS) refers to games that are stored on a company’s cloud platform rather than on the gamers’ device.

Extensive availability of high-speed Internet and increasing adoption of mobile and portable devices are driving demand for cloud gaming. This shift is benefiting consumers as the cost of purchasing games is significantly lower when compared with a subscription package.

Per data from ResearchandMarket.com, the cloud gaming market is projected to witness CAGR of 26.12% during 2017-2023 to reach a total market size of $4.28 billion.

EA is gaining strength from digital revenues (70% of total revenues) backed by live services and mobile games. In the last reported quarter, revenues from live services (44%) increased 37% to $698 million driven by Ultimate Team, The Sims 4 and Battlefield 1.

Revenues from mobile games (11%) increased 4% year over year to $172 million on the back of Star Wars: Galaxy of Heroes and FIFA Mobile. The company expects the digital business to remain a tailwind.

Competition Remains Intense

EA faces stiff competition from Activision’s (ATVI - Free Report) expanding mobile gaming portfolio, which includes Candy Crush. Additionally, Take-Two (TTWO - Free Report) poses serious threat with its acquisition of free-to-play mobile game developer, Social Point,. The buyout will help the company to quickly penetrate the robust mobile gaming market.

Moreover, Snap (SNAP - Free Report) is also planning to introduce mobile games on the Snapchat platform, which is expected to intensify competition further.

Currently, EA carries a Zacks Rank #3. (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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