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Electronic Arts Continues To Invade Zynga's Turf

Electronic Arts (ERTS) is best known for the Madden NFL and Battlefield franchises. However, these franchises are not why I am bullish on Electronic Arts. Electronic Arts' most significant area of growth is the browser-based gaming business. While Zynga's (ZYNG) IPO has captured most of the attention in this industry, Electronic Arts has been quietly expanding.

The Wall Street Journal reported on November 2, 2011 that EA was "nipping at the heels" of Zynga's social game dominance. "EA has cracked Zynga's hold on the top games played on social-networking site, Facebook Inc." It goes further to state Electronic Arts has one hit so far, The Sims Social, but now Electronic Arts has produced a second hit - Lord of Ultima.


Over the next 3 quarters Electronic Arts' main revenue growth will come from social gaming and free-to-play games.


The free-to-play/pay-to-win business model is extremely innovative. It allows Electronic Arts to continue to gain revenues from a game ad infinitum, as players leverage their buying power to crush their opponents in these virtual worlds.

Another innovative concept from Electronic Arts is charging a flat $9.99 fee, to enter its Playstation 3 online service. The initial purchaser gets a card to waive the fee. However, pre-owned buyers have to pay, allowing EA to collect revenue throughout the life of the product.

Electronic Arts' willingness to change the profit paradigm of the video game industry, as well as its ability to provide excellent video games, makes it an excellent investment this holiday season.
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