Mobile is the New Battlefield

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Most of the big names in video games franchises, such as Battlefield, Mass Effect, and sports video games FIFA and NHL, are under the ownership of one of the largest video game publishing company in the world: Electronics Arts (NASDAQ: EA). However, over time the gaming industry has changed a lot, with the outbreak of various mobile devices like smartphones and tablets. Consequently, all the main industry players are investing heavily in mobile games and social media games to retain their market shares and to meet the consumers’ demands. Electronic Arts is no exception to this trend.

The company is continuously cutting down on its games for consoles and PC's (67 in 2009 to just 22 in 2012) and focusing more on games for mobile and social media. In 2013, the company is expected to launch thirty games for mobile in order to build its collection of over 500 mobile titles.  One of the major initiatives by EA to build its presence in mobile gaming is its deal with Nazara Technologies. 

After their successful joint venture in the Middle East and India, EA announced its partnership with Nazara Technologies to expand into the African market. Under this deal, Nazara would provide EA's mobile games to the various telecom operators in the countries in Africa. This will extend EA's reach to over 770 million mobile phone users in Africa. The games would be available on JAVA and Android via EA's mobile gaming platform N Play. Gaming is still in its infant phase in Africa, which gives EA a huge opportunity to tap this market with its good quality games. 

On the other hand, Activision Blizzard (NASDAQ: ATVI), another big player in the industry, partnered with Chinese Internet portal Tencent to launch its leading video game franchise 'Call of Duty online' in China. Call of Duty is the highest money maker for the company, with sales of ~$1 billion annually. Now Activision is launching an online version of the game for the Chinese market. This is a huge opportunity for the company because Tencent is the leading internet service provider in China. And because of the rising popularity of online games in China, this could be a win-win situation for both the companies to enhance their revenues. The company's recent launch of the latest version of 'Call of Duty: Black Ops II' had record sales of ~$500 million on the opening day of its release. Besides, Activision is continuously expanding its product portfolio to improve its top-line growth in the long run. 

Speaking of mobile gaming, Zynga (NASDAQ: ZNGA) was once a popular name in online and social gaming. However, most of its titles, such as FarmVille, CityVille, CastleVille, and Poker have reached their maturity levels, and the company is lacking in developing new products. As a result, its stock price has seen a huge downfall of ~56% in the last 6 months, and it is currently trading at ~$2.46. 

The recent news of Zynga parting ways from Facebook came as a shocker for its investors, as Zynga was heavily dependent on Facebook for its revenue. Now, without this social platform Zynga would lose a major chunk of its free advertising along with its main distribution platform. The dropping market share of Zynga will present a favorable opportunity for other players such as EA and Activision. 

Moving back to EA, let us have a look at its portfolio of games and the company's future outlook.

Despite rising competition and industry headwinds, Electronic Arts posted good 2Q13 results, with its digital revenue increasing by 45% to ~$314 million. This was the result of its robust growth in all its platforms, i.e. consoles (up 31%), PC (up 45%) and mobile (up 62%). In its mobile segment, digital sales on smartphones increased by a hefty ~128% to ~$66 million. The company is pinning a lot of hopes on its mobile segment and expects it to become a key contributor in its profits.

Along with this, EA is also leveraging its popular console games. The company recently launched a digital expansion pack on one of its flagship games named 'Battlefield 3: Aftermath'. Battlefield 3 is one of the highest sellers in the company's history, with sales of ~17 million units since its launch. And, with this expansion pack, EA is aiming at achieving the same heights in its sales. The table below shows some of the upcoming games following the previous hit titles.

<table> <tbody> <tr> <td> <p><strong>Title</strong></p> </td> <td> <p><strong>Release Date</strong></p> </td> <td> <p><strong>Predecessor Unit Sales (~)</strong></p> </td> </tr> <tr> <td> <p>Crysis 3</p> </td> <td> <p>Feb '2013</p> </td> <td> <p>2.1 million</p> </td> </tr> <tr> <td> <p>Dead Space 3</p> </td> <td> <p>5 Feb '2013</p> </td> <td> <p>2.4 million</p> </td> </tr> <tr> <td> <p>Army of Two: The Devil's Cartel</p> </td> <td> <p>26 March '2013</p> </td> <td> <p>1.5 million</p> </td> </tr> <tr> <td> <p>Fuse</p> </td> <td> <p>March '2013</p> </td> <td> <p>N/A</p> </td> </tr> </tbody> </table>

Source: Company Website

To conclude, I think the gaming industry is in a profitable situation and the companies are looking at various ways to cash in on the opportunities in mobile, expecting substantial increase in their revenues. The mobile gaming sector is all set for a high growth with ~1.2 billion smartphones and tablets expected to be sold in the next year. Both Electronic Arts and Activision are operating well in this environment with their strong product pipelines of high quality gaming titles. I expect this trend to continue for them in the future, and recommend buying these two stocks.

ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool owns shares of Activision Blizzard. Motley Fool newsletter services recommend Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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