Digital Revenue Shines yet Again: Electronic Arts Inc. (EA), Activision Blizzard, Inc. (ATVI)

Coming Soon

Electronic Arts will be releasing its popular titles and more new releases like Crysis 3, Army of Two: The Devil’s Cartel, and Fuse in 2013. However, one of its most awaited games would be Dead Space 3, which is set to release on Feb. 5 in North America and on Feb. 8 in Europe. The pre-order numbers are already trending ahead of its previous title Dead Space 2. The game will also feature a micro-transaction system that will enable trading of booster packs of weapons, power-ups etc. This is an important source of revenue for the EA in its titles.

The company is making an aggressive promotional strategy for the launch, and its demo will be available for downloads for Microsoft Corporation (NASDAQ:MSFT) Xbox 360 users. The Xbox users will be using Kinect, which is Microsoft’s motion sensor add on for Xbox, and they will also be able to interact verbally with their partners using simple commands, and for the single players it recognizes with voice and face identification. Microsoft has also announced that it will be releasing its Xbox 720 at E3 2013. This Xbox 720 will consist of a quad core processor, 3D viewing, Blu Ray support, and be 6x faster than the current Xbox. This new console is expected to change the gaming scenario by making the games more real. The company is also working on the Kinect glasses, which will further enhance the playing experience.

Conclusion

To sum up, I feel the growing digital revenue provides a strong opportunity for EA to pull its earnings growth back on track. The digital revenue is highly beneficial for the company’s overall profitability with a gross margin of ~90%. The better 3Q 2013 results have raised the hopes for its future growth with over 30 million registered users, which include 13 million users on mobile. I expect EA’s digital revenue to grow from ~$1.2 billion in FY 2012 to ~$1.65 billion in 2013, and it could reach ~$2 billion in 2014. This could be an upside to its stock price in the near to long term.

The article Digital Revenue Shines yet Again originally appeared on Fool.com and is written by Shweta Dubey.

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