EA’s Future Uncertain (ERTS, ATVI)

Recently, Morningstar published a cautiously optimistic report about the struggling gaming giant Electronic Arts (ERTS). Morningstar believes that “EA's focus on fewer games creates significant opportunity for future revenue and margin upside if the company is able to deliver new blockbuster hits.” Analysts think that EA’s investments in massively multiplayer online role-playing games like Activision Blizzard’s ATVI hugely popular World of Warcraft have big potential upside, but this is contingent on EA’s ability to attract and keep a significant audience. Morning star analysts also think “the commoditization of distribution via new online game delivery methods will exacerbate pricing pressure on lower-quality games.” Morningstar’s fair value estimate is $19 per share. It expects revenues to stabilize at about 5% below fiscal 2010 levels followed by mid-single-digit average growth over the subsequent four years. Learn how to trade Electronic Arts with our 70 page E-Book and 90 minute online video.