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Electronic Arts May Have Room to Run

A big late-year game schedule could bring more upside


It was another intraday high Thursday for shares of Electronic Arts (NASDAQ:ERTS), thanks to a rally sparked initially in early February by surprisingly strong earnings and a confirmation for full fiscal-year results.

At a high of $20.40 on Thursday, the stock has reached levels not seen in 18 months.

By reaching these peaks, investors no doubt feel that the window of opportunity with EA has closed. It would be wise, however, to turn back the clock to where the company similarly stood four years ago.

In 2007, EA completely restructured its business at a crucial moment, breaking into four divisions: EA Sports, EA Games, EA Casual Entertainment, and EA Sims. Each branch oversaw development of products targeted at a specific demographic and it helped EA consolidate its resources at the same time it launched successful new programs like the EA Partners initiative, which saw EA Games publishing the work of independently-owned studios.

The streamlined business operation helped maximize revenue from record-breaking releases–Madden NFL 2008 was one of the best-selling games of that year and one of the most significant years of growth for the brand — as well as establish still-lucrative partnerships with companies like Valve and Bioware.

EA is at another crucial juncture now, and the company’s release schedule and recent restructuring echo that of 2007. Following the disastrous cancellation of NBA Elite last October, EA brought all sports-game development into the studio Tiburon, the creative team behind Madden. Although jobs were lost by bringing FIFA, Tiger Woods, NBA Elite, and Madden NFL under one roof, the streamlined unit should improve revenue when those perennial titles come out this fall.

The established Partners program also will yield its greatest fruit this year in the shape of Bioware’s World of Warcraft competitor Star Wars: The Old Republic, not to mention a new entry in the Mass Effect franchise in the fall.

And here’s the real possible parallel from four years ago for investors: Even though shares of EA had recovered by January 2007, they had grown stagnant by June. Following the robust late-2007 release schedule alongside the corporate shuffling, the stock jumped by 30%, topping out just behind its all-time high at $61.

EA may not see $61 in 2011, but $20.40 doesn’t seem like the near-term peak with big things coming from the company in the months ahead.

As of this writing, Anthony John Agnello did not own a position in any of the story.

Article printed from InvestorPlace Media,

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