EA’s competitors complete the spectrum of approaches in response to mobile gaming and so-called “freemium” models. Showing a sense of urgency, Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has released four mobile titles in under two months: Haunted Hollow, Sid Meier’s Ace Patrol, Beejumbled, and XCOM: Enemy Unknown. The first 3 are free-to-play, while the latter retails for $19.99. The company now offers ten games for iOS and five for Android. EA’s games have been in the marketplace longer, however, so it’s no surprise that many of Electronic Arts Inc. (NASDAQ:EA)’s mobile games have more than one million installs, while not one of Take-Two Interactive Software, Inc. (NASDAQ:TTWO)’s mobile games has more than 100,000 installs and most have fewer than 10,000 installs.
Activision Blizzard, Inc. (NASDAQ:ATVI) is watching the mobile gaming market carefully, but so far has elected not to invest any money in creating games for this space until it is confident that it will earn a decent return. In its latest quarterly earnings call, the company noted that the top ten mobile franchises have changed every year for the past five years, with no history of generating significant sustainable operating income. The company views mobile as a market with long-term potential but significant short-term risks.
Conclusion
I am pleased to see a credible vision from Electronic Arts Inc. (NASDAQ:EA) in regard to broadening the company’s intellectual property brands to engage consumers across multiple platforms including digital distribution, consoles and mobile. This vision includes both the initial purchase and in-game micro-transactions or monthly subscriptions that turn games from a one-time purchase to an ongoing experience that continues nearly a year after the game’s launch. Now is the time to execute, but given the past year’s difficulties with the FIFA 13, SimCity, and Medal of Honor Warfighter releases, execution has never been Electronic Arts Inc. (NASDAQ:EA)’s strong suit.
The market has priced in superior execution from Activision Blizzard, Inc. (NASDAQ:ATVI), as shown by the company’s higher price-to-revenue multiple. Activision Blizzard, Inc. (NASDAQ:ATVI) had revenue over the past twelve months of $5 billion and is currently valued around $15 billion, a multiple of 3. EA posted trailing twelve month (TTM) revenue of $3.8 billion and sports a market cap of $6.7 billion (a multiple of 1.76), while Take-Two Interactive has the smallest multiple at 1.08 its TTM revenue for a market cap of $1.3 billion. Take-Two Interactive’s stock has the greatest room to run given its low valuation, while reversion to the mean could spell short-term headwinds for Activision Blizzard, Inc. (NASDAQ:ATVI).
To the extent that the above companies can earn a larger percentage of more profitable digital revenues compared to traditional packaged goods, they all have potential to increase the revenue-per-customer generated over the life of each game. As a result, they may legitimately warrant a multiple higher than the industry average.
The article Which Video Game Maker Will Win Digital? originally appeared on Fool.com and is written by Jason Earley.
Jason Earley has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard and Take-Two Interactive . The Motley Fool owns shares of Activision Blizzard. Jason is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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