The Profitability of Electronic Art: the Performance of the Company - Assignment Example

? Analysis Report of Electronics Art Company EXECUTIVE SUMMARY Electronic Arts was started in 1982, and it is known as one of the gaming vendor and producer. The company is an American publisher, distributor, developer and marketer and has belonged to one of the largest companies in the video game industry. Trip Hawkins started the company in 1982 and he became the pacesetter in the industry. During its start up the company was a publisher, but it slowly started developing in house games like Die or Skate. The company then began to buy various developers. This quickly made it to become one of the largest publishers in the market. Today, the company is one of the largest interactive entertainments that deal with the software companies (Zippay, Lori 87). The company is located in CA 94063 in Redwood City. In 2001, Electronic Arts acquired pogo.com. Pogo is at the forefront in offering the services of online family games with nearly seventeen million members who are registered. Because of the company’s popularity, most leading research companies names the acquired firm as one of the stickiest web pages in 2000. But the financial details of the deal remained disclosed. In 2000, the company released The Sims, which was rated as the best-selling personal computer game of all time. In 1998, the company announced that it had signed a deal to buy all the outstanding stock of a company called the Westwood Studios. Additionally, it bought the Virgin Interactive Entertainment studio assets. Virgin Interactive Entertainment is one of the branches of Spelling Entertainment Group. The transaction cost was valued at 122.5 million dollars. COMPANY PROFILE Ticker symbol The video game maker company changed its NASDAQ stock exchange from “ERTS” to “EA”. The ticker symbol was made effective on Thursday 15th Dec 2011. Therefore, the current ticker symbol for Electronic Arts is “EA” Mission Statement The mission statement for Electronic Arts is “We are an association of Electronic Artists who share a common goal. We want to fulfill the potential of personal computing”. Corporate Headquarters The company is a global organization with development studios and offices that are located across the world. The company provides their employees with opportunities and avenues to leverage their talents across various locations of the world. The company makes sure that all workers in all regions are equipped with best investment, great facilities, and support to work while maintaining team spirit and creativity. The company has united locations to generate the passion of creating great game software which fulfills the quest for entertainment ("Multimedia & Graphics Software Industry Leaders & Laggards: Industry Center - Yahoo Finance."). Electronic Arts operates its corporate headquarters in California in Redwood Shores. Its regional headquarters is in Singapore and Geneva Switzerland. Additionally, the company has worldwide studios in the following areas: United States ( Tiburon, Maxis, Mythic, Visceral Games, and All Play), Canada (All play, Bio Ware, EA Montreal, and EAC ), Europe (Galway, Criterion, Digital Illusions, Phonemic, and Bucharest), and Asia (Shanghai, Seoul, Hyderabad, Pandemic, Singapore, Melbourne) ("Multimedia & Graphics Software Overview: Industry Center - Yahoo Finance."). Date of Incorporation The company was founded and incorporated in 1982 May. The founder of the company was Trip Hawkins. Electronic Arts became the pioneer of the home computer games and was known for promoting the programmers and designers that are responsible for their own games. The company became the 3rd largest software companies for games after Activision Blizzard and Nintendo (Zippay, Lori 98). Electronic Arts Executive Name Position Andrew Wilson Chief Executive Officer Lucy Bradshaw Senior Vice President Maxis Frank Gibeau Executive Vice President EA mobile Blake Jorgensen Chief Financial Officer Joel Linzier Executive Vice President Business and Legal Affairs Peter Moore Chief Operating Officer Patrick Soderlund Executive Vice President EA studios Rajat Taneja Chief Technology Officer Gabrielle Toledano Executive Vice President, Chief Talent Officer Ken Barker Chief Accounting Officer Stephen G. Bene General Counsel and Corporate Secretary Stock classification Common stock Electronic Arts, Inc. has a common stock of 28.13 as of November 2013. The company’s common stock is on the balance sheet at the principal value of the total number of shares that is outstanding for the company. The principal value of the company’s common stock is meaningless and is set at a lower figure ("Multimedia & Graphics Software Overview: Industry Center - Yahoo Finance."). Dividends Electronic Arts has not issued the dividends to the shareholders in more than two years. INDUSTRY PROFILE Electronic Arts denoted as EA is operated in the technology sector and Multimedia & Graphics Software industry. Multimedia and Graphics Software industry have a composite value of 958.9, S&P 500 of +0.43% and today’s change of + 0.15%. This year Activision Blizzard (one of the EA competitors) raised its outlook driven by more than expected 3rd quarter revenues. The company closed an agreement of 8.2 dollars in October to purchase its shares from the French media ("Electronic Arts Inc.: NASDAQ: EA quotes & news - Google Finance."). The transaction is expected to yield 83 cents as earnings per share. A Los Angeles based company called Santa Monica asserted that its income and revenue fell in the 3rd quarter. The results were higher than the expected revenue of 589.4million and EPS of three cents. Some of the industry top performers include Intraday Price Performance % Change Market Cap EMME [EME.PA] +9.02% $2.5 B International Game Technology C [IGT] +4.42% $4.9 B Avid Technology, Inc. [AVID] +2.32% $283.4 M GAMELOFT [GFT.PA] +1.45% $0 KongZhong Corporation [KONG] +0.98% $343.4 M More Top Intraday Price Performers... Market Capitalization % Change Market Cap KONAMI [KNM.L] 0.00% $33372.0 B Activision Blizzard, Inc [ATVI] 0.00% $18.7 B NETDRAGON [0777.HK] -1.01% $9.1 B Electronic Arts Inc. [EA] +0.70% $7.9 B ELECTRONIC ARTS [ERT.DE] +2.47% $5.7 B Industry Leaders by growth rate Leaders in Quarterly Revenue Growth (YoY) COLOR CHIPS [COLORCH.BO] 311.30% SUNGAME CORP [SGMZ] 222.60% VIRTUAL PIGGY, INC. [VPIG] 205.30% NETDRAGON [0777.HK] 54.30% Laggards in Quarterly Revenue Growth (YoY) Majesco Entertainment Company [COOL] -56.30% The9 Limited [NCTY] -52.20% GigaMedia Limited [GIGM] -48.70% Take-Two Interactive Software, [TTWO] -45.50% ATARI RGPT [ATA.PA] -44.40% Zynga Inc. [ZNGA] -36.00% Avid Technology, Inc. [AVID] -22.80% Rovi Corporation [ROVI] -15.70% Industry Leaders by financial strength eaders in P/E Ratio (ttm) KONAMI [KNM.L] 2929.21 GAMELOFT [GFT.PA] 98.27 Electronic Arts Inc. [EA] 34.87 ELECTRONIC ARTS [ERT.DE] 25.03 KongZhong Corporation [KONG] 22.88 Konami Corporation American Dep [KNM] 22.61 Laggards in P/E Ratio (ttm) DQ ENT [DQE.BO] 1.99 Changyou.com Limited [CYOU] 5.04 Shanda Games Limited [GAME] 6.63 ATARI RGPT [ATA.PA] 9.66 EBET FPO [EBT.AX] 10.51 ADV INFL ALLIANCE [DVN1.DE] 11.22 Giant Interactive Group Inc Ame [GA] 12.51 Perfect World Co., Ltd. [PWRD] 13.99 Activision Blizzard, Inc [ATVI] 14.02 Top Multimedia & Graphics Software Companies by Market Cap ("Electronic Arts Inc. EA (U.S.: Nasdaq).") Company Symbol Price Change Market Cap P/E Konami Corp. KNM.L 2,396.04 0.00% 332.13B 29.15 Activision Blizzard, Inc. ATVI 16.53 0.00% 18.50B 13.88 Net Dragon Web Soft, Inc. 0777.HK 17.56 1.01% 8.88B 381.74 Electronic Arts Inc. EA 25.74 0.70% 7.93B 35.02 Electronic Arts Inc. ERT.DE 18.86 2.47% 5.81B 25.65 International Game Technology IGT 19.61 4.42% 5.11B 17.60 Bar chart From the bar chart it is noted that Electronic Arts only holds 2% of market capitalization in the industry. The industry leaders in market capitalization id Konami Corp with 89%. Electronic Arts Vs. Industry Leaders Statistic Industry Leader EA EA Rank Market Capitalization KNM.L 332.13B 7.93B 4 / 43 P/E Ratio (ttm) KNM.L 29.15 35.02 3 / 43 PEG Ratio (ttm, 5 yr. expected) ATVI 2.14 1.31 2 / 43 Revenue Growth (Qtrly YoY) COLORCH.BO 311.30% -2.30% 17 / 43 EPS Growth (Qtrly YoY) 0777.HK 175.70% N/A N/A Long-Term Growth Rate (5 yr.) NCTY 85.50% 15.00% 8 / 43 Return on Equity (ttm) CYOU 45.09% 10.23% 10 / 43 Long-Term Debt/Equity (mrq) 24.934 N/A Dividend Yield (annual) GA 5.20% N/A N/A From the table above it is noted that EA is only above the industry in financial strength. However, the company is performing dismally in revenue growth and return on Equity ("EA Industry: Multimedia & Graphics Software | Electronic Arts Inc. Stock - Yahoo! Finance.") CURRENT EVENTS/ OUTLOOK The Electronic Arts Company raised its profit projection for the financial year by 0.70%. The rise in profit is attributed to the enthusiasm of the consumers when they launched the new video games consoles. On 29th October, the video game developed reported that their loss was reduced by 28% to 273million dollar in the 3rd quarter. This is attributed to successful launches and cost cutting strategies. From the company’s records their revenue was tallied at 695 million dollars, with sales of gaming products that was delivered over the web accounting nearly 65% of the total. During that quarter the company recruited a new CEO called Andrew Wilson, and developed various games such as Plants vs. Zombies and Madden NFL. The two games were meant for mobile phones. The sports games for the company performed as it was planned, while the remaining company’s portfolio performed much better. The mobile game that stands out is “Simpsons” which was launched in 2012 and recently it was at the top in terms of revenue. The results together with the rising demand led EA to increase its profit to 1.25 dollars per share. According to the Thomson Reuters, analysts were expecting the revenues to be 1.22 dollars per share. According to the Chief Financial Officer, enthusiasm among the customers for next generation consoles launch made by Microsoft Inc and Sony Corp is stronger. But the company is experiencing uncertainty about the customer buying habits after and during the launch of the devices. The company is planning to launch Xbox One and PlayStation 4 when the industry is trying to find better growth (Zippay, Lori 87). For the last seven years the habits of gamers are changing and new makers of games like the Zynga ins have experiences busts and booms as they move making titles social networking websites and mobile devices. The company will continue to be cautious about their costs and will also ensure that they invest in future titles and new ideas. Excluding elements like the deferred revenue, the company recorder the revenues of 33 cents PS, this is more than fifteen cents that the company recorded during the last financial year. The company is also celebrating 1.04 billion dollars in sales; this is a downfall of the previous year. According to the company’s outlook, the company expected sales of twelve cents per share on the sales of 976 million dollars. The company is expecting an adjusted profit of 1.22 dollars per share. This is about 1.65 billion dollars in the current financial quarter. On average, the company is expecting a profit of 1.32 dollars per share on the sales of 1.75 billion dollars (Zippay, Lori 89). RECOMMENDATION After analyzing all the data and key industrial information, I came to the conclusion that I will recommend others to buy the Electronic Art’s stock. First, Electronic Art has been for years a very successful business and impressed not only its shareholders, but also the public interest with positive business doing. Diversifying its product line, meaning by implementing diverse gaming applications, will make the Electronic Art just more competitive in their field and will help them get up the economic ladder faster. According to financial data, from the profit margin, we can find out the profitability of a company. Comparing the profit margin of 2008 and of 2009, the profit margin went down by a substantial percentage. However, it is not that much when comparing to other games companies’ profit margins changing. According to the Current Ratios of Electronic Arts, which decreased from 1.345 to 1.247, we can find that the company’s liquidity decreased over the two year period evaluated, which means cash is flowing show the company more quickly. Which means the risk of operation the company is lower. In addition, the debt to equity ratio of 2009 was 1.956, less than that in 2008 which was 2.156. This indicates that Electronic Arts is operated in a more stable situation with more stable funds. Although the profitability of Electronic Art is low now, it may increase in the future as the performance of the company continues. The upward trend of value predicts that the stock value of Electronic Arts will continue to increase in the future. Consequently, Electronic Arts is poised for long-term success because of their longstanding competitive advantage—stronger brands, customer preference, more than 23 years of experience, a proven business model of managing and developing computer games. In short, Electronic Arts is really a potential corporation that is worth of investment. Reference "EA Industry: Multimedia & Graphics Software | Electronic Arts Inc. Stock - Yahoo! Finance." EA Industry: Multimedia & Graphics Software | Electronic Arts Inc. Stock - Yahoo! Finance. N.p., n.d. Web. 6 Nov. 2013. . "Electronic Arts Inc. EA(U.S.: Nasdaq)." EA Stock Price Today. N.p., n.d. Web. 6 Nov. 2013. . "Electronic Arts Inc.: NASDAQ:EA quotes & news - Google Finance." Electronic Arts Inc.: NASDAQ:EA quotes & news - Google Finance. N.p., n.d. Web. 6 Nov. 2013. . "Multimedia & Graphics Software Industry Leaders & Laggards: Industry Center - Yahoo Finance." Multimedia & Graphics Software Industry Leaders & Laggards: Industry Center - Yahoo Finance. N.p., n.d. Web. 6 Nov. 2013. . "Multimedia & Graphics Software Overview: Industry Center - Yahoo Finance." Multimedia & Graphics Software Overview: Industry Center - Yahoo Finance. N.p., n.d. Web. 6 Nov. 2013. . Zippay, Lori. Electronic Arts Intermix, video. New York, N.Y. (536 Broadway, 9th floor, New York 10012): Electronic Arts Intermix, 1991. Print. Read More