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'Star Wars' Keeps Electronic Arts in the Game: Analyst

Electronic Arts, known best for its sports game brands "Madden" and the "Tiger Woods PGA Tour," has bet big on its latest "Star Wars: The Old Republic." Gaming analyst Edward Williams of BMO Capital Markets thinks it was a make-or-break move.

"The key thing to focus on is, what happened with Star Wars? The game sold exceptionally well when it came out December 20th," he said.

Williams expects the company to report fourth quarter revenues at $1.6 billion, a 13 percent increase from a year ago.

But the pressure for Star Wars sales is high. Since EA hit a three-year high in November, 2011, shares are down 29 percent.

Meanwhile, companies offering online games, likeZynga and Facebookare closing in on EA's traditional business model.

"EA is trying to get into the online games through acquisitions. They bought Playfish, and Popcap this past summer," said Williams. Still, he thinks EA has a long way to go to establish itself as an online player.

"They need to take the brands they have and bring them over to social world," he said. "It's a major challenge — navigating through a different business model."

If EA succeeds in making the switch, it will effectively be going from a big ticket packaged goods model, to a recurring revenue stream from micro-transactions.

Williams' outlook for 2012 is positive.

"The stock will trade certainly in the mid to high 20s, and the investments they have made will add to the dividend, but most critical in the near term is what's happening with Star Wars."

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Disclosures:

Edward Williams does not own shares in EA.

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