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EA & Funcom Release Latest MMO

Zacks Equity Research

Video game giant Electronic Arts Inc. (EA) and Funcom recently released the PC version of their massively multiplayer online (“MMO”) game, The Secret World. The new MMO from EA’s stable takes gamers around the world, where they join with secret societies (Dragon, Templar, Illuminati) to fight against evil forces that include zombies, vampires, and mummies. All these pulsating actions take place in the modern day set up.

The popularity of the game can be gauged by its robust count of 1.5 million gamers who had registered for the beta testing, according to Funcom. The game is available through Origin, EA’s digital platform. With the release of The Secret World, EA would not only add another game to its portfolio, but will also solidify its position in the MMO gaming market. The game is priced at $49.99.

Another MMO from EA’s stable, Star Wars: The Old Republic (“SWTOR”), had enjoyed a massive response following its release. Two million units of the game were sold instantly. The game registered 1.7 million active users at the end of December 2011.

However, since then there has been a substantial decline in the subscriber base which dipped to 1.3 million at the end of March 31, 2012. This has compelled the company to introduce a free version of the game which lets gamers reach to the 15th level. This move is expected to provide the necessary boost to the subscriber base.

EA has been facing tough competition from Activision Blizzard Inc.’s (ATVI) MMO, World of Warcraft, which boasts one of the biggest subscriber counts among the present generation of MMOs. It has a subscriber base of over 10.2 million.

Moreover, the emergence of free-to-play MMOs by social game makers like Zynga Inc. (ZNGA) has also been eating into EA’s market share. Additionally, EA has a portfolio of free-to-play MMO’s, which might cannibalize the sales of the paid version of the games.

Overall, we remain cautious on the company due to the gloomy macro-economic environment and increasing competition from its peers. However, we believe EA’s high-quality titles and a robust product pipeline along with the increasing online exposure and traction in the social and mobile gaming market are the long-term positive catalysts. Thus, we have a Neutral recommendation on EA over the long term.

Currently, EA has a Zacks #3 Rank, which implies a Hold rating in the short term.

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