EA Adds New Technology - Analyst Blog

A leading developer and publisher of video games, Electronic Arts (ERTS) studio –Black Box is adding Dolby Laboratories Inc.’s (DLB) Dolby Axon voice chat technology to its hugely popular multiplayer online (MMO) racing action game – Need for Speed World.

Dolby Laboratories is a leading provider of high quality audio and surround sound technology. Axon voice chat technology ensures noiseless and echoless communication among team members. Players can chat using any stereo headset, stereo speakers and 5.1 playback systems.

Black Box Studio (the developer of Need for Speed World) had announced to incorporate the technology before the holiday season. The game, which is scheduled to release in second quarter ending September, 2010 will be available exclusively on personal computers (PC).

 We believe this new sound feature will spice up the racing game and deliver a unique experience to players. In our opinion, the recently released Madden NFL 11 and the upcoming Need for Speed will drive top-line growth in the second quarter ending September 2010.

Social gaming has gained massive popularity because of the significant increase in internet usage attributable to a rapid growth in the use of Internet. Casual games on social networking sites such as Facebook have gained millions of users because one can start playing them instantly and they are incredibly easy to operate.

This mammoth success of online and social gaming is expected to have a major impact on gaming companies, as they prepare themselves for transition to Internet based gaming as compared to the conventional gaming.

 In June, Electronic Arts signed a major deal with the online video streaming company Gaikai Inc. Gaikai, through its server based cloud computing technology allows users to play major PC and console games without any downloading or installation.

The Gaikai deal will enable worldwide game players’ access to Electronic Arts titles such as The SimsT, Medal of Honor and Need for Speed and other titles straight to any Web browser.

Electronic Arts continues to maintain its innovativeness and the superior quality of its video games. Despite a reduced title slate, which went from 10 in the first quarter of 2010 to 6 in the recently concluded first quarter of 2011, Electronic Arts reported revenue of $815.0 million, well above $644.0 million recorded in the prior-year quarter.

We believe Electronic Arts has a strong pipeline of products such as Medal of Honor, Dead Space 2, Need for Speed, Hot Pursuit and Crysis 2 in the second half of 2010, which is expected to drive its top-line growth in the coming quarters.

However, Electronic Arts faces stiff competition from Activison Blizzard (ATVI), Take-Two Interactive Software Inc. (TTWO) and privately held Sony Online Entertainment LLC, which compels us to maintain a neutral recommendation on a long-term basis (6-12 months).

Currently, Electronic Arts has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.