Electronic Arts Stock Investors Should Be Happy About This
May 8th 2013 9:00PM
Updated May 9th 2013 1:00AM
Though Electronic Arts' stock investors will note that the company's share price is up 25% since the beginning of 2013, things haven't been going well for EA recently. But despite a few setbacks, the company scored a major victory earlier this week.
A new hope
Back in March, EA CEO John Riccitiello resigned from the company after taking responsibility for its financial problems. A few weeks after that, the company announced major layoffs, and then days later it said it was shutting down its Facebook games. To top it all off, EA had a disastrous launch of the popular SimCity game around the same time.
But this seasoned game maker finally has something to be happy about -- Star Wars. Walt Disney , the now-owner of all things involving the force, shut down LucasArts and struck a deal with EA to create future Star Wars games. Electronic Arts will create games for core gaming audience, meaning game consoles and PCs, and Disney will retain the rights to online, mobile, tablet, and social games.
EA's top three studios -- DICE, Visceral, and BioWare -- will work on the games, BioWare having worked on several Star Wars games in the past with LucasArts. Striking a deal like this with Disney is great news for EA and its stock investors. Not only does the deal come at a time when the company needs some good news, but if EA also delivers great Star Wars games for Disney, it could lead to much more collaboration between the two companies in the future.
Just as EA's BioWare had the licensing agreement for two previous Star Wars games, other companies such as Obsidian and Traveller's Tales have created games based on Star Wars characters. What's great for Electronic Arts stock investors is that the deal is a multi-year exclusive licensing agreement for the company. Although it's unclear what the fate of current Star Wars games will be that aren't made by the company, it seems that all future Star Wars-related games on PCs and consoles will comes through Electronic Arts -- globally.
More good news ahead?
In addition to the Disney deal, rumors have been swirling that EA will announce a new partnership with Microsoft next month, at the company's forthcoming Xbox unveiling. Although nothing has been formally announced between the companies yet, if the speculations are true then it will be a turning point for EA, which up until now has been more focused on creating games for Sony's PlayStation consoles. Both Microsoft and Sony are in a heated console battle, with the latest numbers from IDC showing that Microsoft has shipped 76 million Xbox 360 units since its launch, and Sony has shipped 77 million PlayStation 3's since its launch -- even though the PS3 launched a year after the Xbox 360.
A new partnership with Microsoft would help EA compete against Activision Blizzard , which has worked very closely with Microsoft over the past three years. Back in 2010, the two companies made a strategic partnership to bring its popular Call of Duty games to the Xbox first. Activision also has a strong relationship with Bungie, the maker of Halo, and is working on Destiny, a much-anticipated new game that will release on consoles in late 2013 and is expected to have a 10-year life cycle. A new partnership between Electronic Arts and Microsoft would help the game-maker become a much stronger competitor against the Activision powerhouse.
According to BusinessWeek, LucasArts brought in $150 million in revenue in 2012 and had $90 million in operating income. EA can't expect the same revenue as LucasArts for two reasons. The first is that they are two completely different companies with different strategies and workforces, and the second is that LucasArts made money from licensing deals in addition to sales of its games. But Electronic Arts stock investors should look at the Disney deal as a way to bring in new business, for at least several years, with a franchise that's proven to make money.
While Activision and Microsoft have been taking the headlines when it comes to console gaming, investors following the gaming sector would do well to also keep tabs on Electronic Arts. We can help. The Motley Fool's special report breaks down the risks and opportunities facing the company to help you decide if EA is right for your portfolio. Click here to get your copy now.
The article Electronic Arts Stock Investors Should Be Happy About This originally appeared on Fool.com.Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard and Walt Disney and owns shares of Activision Blizzard, Microsoft, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.
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