The management team at EA has convinced analysts that the publisher is well positioned to thrive in the next-gen games market.
That isn't enough to prevent the current financial year being a challenging one, Baird Equity Research's Colin Sebastian warns, but it bodes well for life beyond the current generation of machines.
We are becoming more comfortable that EA is building the technology infrastructure and consumer services that should power meaningful competitive advantages across mobile, browser, and next-gen console platforms,” he stated.
While F2013 and F2014 still represent a challenging console transition period, we believe this year will likely mark the trough in the number of new console releases before new Microsoft and Sony platforms launch next year.
This year will likely mark the trough for EA console game sales. We expect that F2013 will mark the low point in new releases and sell-through for EA in the console market, with a larger slate planned to coincide with new console hardware next year. As EA continues to improve profitability among its core franchise base, EA will likely annualise key franchises, and drive further user monetisation across connected platforms.”
And while Origin may still attract its fair share of criticism from consumers, Sebastian believes the struggles EA has endured to establish it in this generation will pay off in the next.
EA platform and infrastructure provide a competitive advantage,” he insists. Although EA has faced more than its fair share of challenges in building an online gaming ecosystem, we believe the company's significant technology investments may begin to pay off as Origin (x-platform services) and Nucleus (x-platform community) connect users across mobile, social, browser and console platforms.
Importantly, we see only Activision Blizzard among game publishers to offer similar depth of service.”
Also positive, from an investor viewpoint at least, is the work EA has done to build its key digital sales business.
Expect further margin expansion as shift to digital continues,” Sebastian predicted. Management expects to drive further operating efficiency with the shift from physical to online distribution, along with leverage over R&D and Sales & Marketing expenses. As such, long-term operating margins could return to 20 per cent plus from current low double-digit levels.”