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EA's SimCity Posts Record Sales

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SimCity logged the biggest launch in its history, as Electronic Arts (EA - Free Report) sold more than 1.1 million units in the first two weeks of the game’s release. Developed by EA division Maxis, SimCity was launched on Mar 5. However, technical disruption marred the most anticipated launch due to “server instability”.

EA stated that the problem with the servers was due to the fact that a large number of players were trying to log on to the network simultaneously, a problem it faced during the launch of Battlefield 3 in Oct 2011. To salvage the situation, EA deployed additional servers and also announced to provide registered SimCity players a free version of the game.

The additional server deployment enhanced EA’s online infrastructure over the next two weeks. Server capacity increased 400%, which improved server response by more than 40 times. EA said that approximately 54% of the 1.1 million unit sales have been through digital downloads, of which approximately 44% were through Origin (EA’s direct-to-consumer digital download service).

The modern version of the 1989 classic game, SimCity, has received a metacritic rating of 71 and is expected to be as popular as its earlier versions. This is primarily due to the expansive game content, which now allows players to build 16 cities simultaneously, each with different specializations. For the first time in the franchise’s history, EA added multiplayer feature to the latest game, which further makes the game attractive in our view.

SimCity is one of those popular franchises of EA, which can be played on a number of platforms including mobile. In Jul 2012, EA released SimCity Social for Facebook (FB - Free Report) . Moreover, EA is set to release the latest version of SimCity for Apple’s (AAPL - Free Report) Mac in spring 2013 (earlier scheduled for a Feb 2013 release). We believe that the Mac release will further boost the game’s subscriber base going forward.

We believe that with its variety of titles and massive fan following, EA is better equipped to gain traction in the digital format than most of its peers including Activision (ATVI - Free Report) . EA’s digital revenues (35% of total revenues) jumped 8% year over year to $407.0 million in the third quarter of 2013.

However, we believe that EA faces a number of headwinds in the near term. Recent top-management changes that include the exit of its Chief Executive Officer will add volatility to the stock in the near term.  Additionally, sluggish video games retail sales and an aging console system lifecycle are the other headwinds in our view.

Currently, EA has a Zacks Rank #3 (Hold).

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