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EA Shares Drop on Lower NFL Sales

Zacks Equity Research

Electronic Arts (EA) recently announced that it has sold more than one million copies of Madden NFL 25 in the very first week. The reported figure is however less than 1.65 million sold in the year-ago period. Shares of the video game maker fell 3.4% to close at $26.76 on Sep 6, 2013.

As per EA, Madden NFL 25 was the highest selling video game in August, with players gaming for more than 6 million hours. The game, which is currently available on Microsoft’s (MSFT) Xbox 360, Sony’s (SNE) PlayStation 3 and Apple’s (AAPL) iPhone and iPad devices, will also run on the upcoming Xbox One and PlayStation 4, scheduled to release in November.

Video game consumers are holding back their purchases due to the upcoming release of these new consoles. This is the primary reason behind the year-over-year slowdown in Madden NFL’s unit sales. It will be interesting to see whether Take-Two’s upcoming Grand Theft Auto V also faces a similar fate post its release this month.

Nevertheless, we believe that the upcoming launch of the consoles provide strong growth potential for EA. The company has a strong product pipeline that includes some of the most well-known franchises such as FIFA 14, Battlefield 4, NBA Live 14 and Need for Speed.

All the four games are scheduled to release in the quarter ending Dec 31, during the peak holiday season. We believe that higher consumer spending on these games will boost EA’s top-line..

Additionally, we believe that EA’s strong digital portfolio and continuing growth in the free-to-play and online segment will drive top-line growth, going forward. Moreover, the company’s efforts to optimize costs through overhead reductions will be beneficial. The company is also gaining traction in the tablet and smartphone market as the games released on iOS and Android platforms.

However, we believe that EA faces a number of headwinds that include a soft video game industry performance and competition from other game makers, such as Activision.

Currently, EA has a Zacks Rank #3 (Hold).

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