Electronic Arts (NASDAQ:EA) has entered the free massive multi-player (MMO) gaming space with the launch of Command & Conquer™ Tiberium Alliances. ((EA launch Command & Conquer Tiberium Alliances, Source: EA’s IR)) Command & Conquer Tiberium Alliances is a portable MMO game with cross-platform accessibility on web browsers and mobile devices. We believe the launch depicts EA’s growing ambitions in MMOs, and clubbed with EA’s mega release of Star wars: The Old Republic the company is looking to go all out in this highly lucrative gaming genre. EA competes with other game developers like Activision Blizzard (NASDAQ:ATVI), Take-Two Interactive Software (NASDAQ:TTWO) and casual gaming mainstays such as Zynga (NASDAQ:ZNGA)
We have a $20.60 price estimate for Electronics Arts, which is roughly in line with its current market price.
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Free to play MMOs are booming
Command & Conquer Tiberium Alliances is a free to play MMO, which generates revenues through microtransactions rather than subscriptions. Free to play, better known as “fremium” games are finding increasing acceptance in MMO gaming space. An average gamer finds the option of playing a MMO free highly attractive compared to paying $15-20 per month for a subscribed MMO.
While the release of Conquest & Conquer Tiberium Alliances is certainly going to strengthen EA’s positioning in free MMO gaming, we believe taking this release in macro-terms depicts a better picture.
The move displays EA’s seriousness when it comes to MMORPGs, with the company targeting different business models in MMORPG gaming space i.e. subscription based MMO with Star Wars The Old Republic, Social MMOs with the acquisition of KlickNation and now free MMOs with Command & Conquer Tiberium Alliances.
We believe EA’s strategy of targeting MMO makes sense because of the high margins involved in this gaming genre. As MMORPGs are entirely digital in nature, the gross margins for this genre runs in 80-85% compared to publishing where margins are around 60-70%.
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