Despite major release cancellations, stiff competition from Activision Blizzard (NASDAQ:ATVI), and underperforming big budget games, Electronic Arts (NASDAQ:ERTS) brought a smile to shareholders’ faces with a fourth-quarter profit that beat Wall Street’s expectations.
EA’s holiday titles Medal of Honor and Need for Speed: Hot Pursuit performed well according to the company, while Madden NFL 2011 sold enough throughout the holiday period to make it the second best-selling game in 2010. EA also reported the major uptick in revenue from digitally distributed software, both downloadable add-ons for home console games and mobile games.
EA ended 2010 as the No. 1 seller of software on Apple’s (NASDAQ:AAPL) App Store and Microsoft’s (NASDAQ:MSFT) Windows Phone 7 app market.
EA shares were up nearly 15% on Wednesday, getting an additional boost from a plan to buy back up to $600 million of its stock.
Despite a huge runup, investors still have reason to take a look at EA.
The company released its first major title for Microsoft’s Xbox 360 and Sony’s (NYSE:SNE) Playstation 3 last week, Dead Space 2, which is already performing well. EA COO John Schappert said Tuesday that the game is outselling the original title by “2-to-1” after just one week, with two million copies of the game already ordered by retailers. The company’s schedule over the next two months, including the Epic Games-developed Bulletstorm and Bioware’s Dragon Age Origins 2, also guarantees EA the bulk of consumer spending on those platforms until the spring.
The company’s mobile division will also get a major boost this spring with the release of the Verizon (NYSE: VZ) iPhone and the rumored iPad 2. EA’s Apple-device games accounted for 14 of the top 25 paid iPhone apps over the holiday period and 15 of the top 25 iPad apps.
Also promising for EA’s 2011 outlook is its World of Warcraft competitor, Star Wars: The Old Republic. The massively multiplayer online PC game marks EA’s first attempt to compete with Activision Blizzard’s 20 million-subscriber strong game. Expected to be released between the second and fourth quarters of 2011, Old Republic has caused some concern among shareholders due to rumors of skyrocketing development costs, but EA’s CFO Scott Brown said Tuesday the company only needs to find 500,000 subscribers for the game to break even.
Janco Partners analyst Mike Hickey said recently he believes investors are “betting against” EA’s bid, but given the persistent popularity of the Star Wars brand, EA stands to make significant headway into a market dominated by ATVI this year.
At the time of publication, Anthony John Agnello did not own a position in any of the stocks named here.
