Electronic Arts May Have Room to Run

It was another intraday high Thursday for shares of Electronic Arts (NASDAQ:
ERTS ), thanks to a rally sparked initially in early February by surprisingly
strong earnings and a confirmation for full fiscal-year results. At a high of
$20.40 on Thursday, the stock has reached levels not seen in 18 months. By
reaching these peaks, investors no doubt feel that the window of opportunity
with EA has closed. It would be wise, however, to turn back the clock to where
the company similarly stood four years ago. In 2007, EA completely restructured
its business at a crucial moment, breaking into four divisions: EA Sports, EA
Games, EA Casual Entertainment, and EA Sims. Each branch oversaw development of
products targeted at a specific demographic and it helped EA consolidate its
resources at the same time it launched successful new programs like the EA
Partners initiative, which saw EA Games publishing the work of
independently-owned studios. The streamlined business operation helped maximize
revenue from record-breaking releases Madden NFL 2008 was one of the
best-selling games of that year and one of the most significant years of growth
for the brand as well as establish still-lucrative partnerships with companies
like Valve and Bioware. EA is at another crucial juncture now, and the companys
release schedule and recent restructuring echo that of 2007. Following the
disastrous cancellation of NBA Elite last October, EA brought all sports-game
development into the studio Tiburon, the creative team behind Madden . Although
jobs were lost by bringing FIFA , Tiger Woods , NBA Elite , and Madden NFL under
one roof, the streamlined unit should improve revenue when those perennial
titles come out this fall. The established Partners program also will yield its
greatest fruit this year in the shape of Biowares World of Warcraft competitor
Star Wars: The Old Republic , not to mention a new entry in the Mass Effect
franchise in the fall. And here's the real possible parallel from four years
ago for investors: Even though shares of EA had recovered by January 2007, they
had grown stagnant by June. Following the robust late-2007 release schedule
alongside the corporate shuffling, the stock jumped by 30%, topping out just
behind its all-time high at $61. EA may not see $61 in 2011, but $20.40
doesn't seem like the near-term peak with big things coming from the company
in the months ahead. As of this writing, Anthony John Agnello did not own a
position in any of the story.