It's a great time to buy into the video game industry. Think about the favorable tailwinds that are boosting the prospects of the world's top gaming-software companies.
- Being early in the wave of next-generation gaming consoles is boosting the retail prices of some hot titles by as much as $10.
- In-game advertising is giving publishers a way to cash in on titles, incrementally, long after the sale.
- Chunky Xbox 360 and PS3 hard drives -- along with the proliferation of broadband connectivity -- are giving software companies access to high-margin, inventory-free distribution.
Yes, these are exciting times to bank on the growing audience of gamers who are tethered to their console controllers or hitting the road with their handheld systems. And if you're going to do it, why cheat yourself by not going for the top dog: Electronic Arts
No, it's not the cheapest player in the sector. EA never is. But you're supposed to pay up for the best. And that's exactly what EA is, my friend. No one else has as many can't-miss franchises as the market leader does. This isn't Take-Two Interactive
Just check out what the company's been up to these days. Last month, it released Madden 08. With annual releases for 18 years now, the premier NFL game keeps growing with every update. Last year's version moved more than 7 million copies alone! Two weeks later, it was time for another Tiger Woods golfing title.
This month? Oh, just a little more added to the lore of the NHL, Medal of Honor, and Sims franchises. In other words, the hits just keep coming at EA.
And the future is even brighter. And I'm not even talking about next month's release of Need for Speed: ProStreet, though it emphasizes the reason why investors should be rallying around EA. Last year's installment of the popular racing series featured 180 virtual billboards throughout the racing circuits. That was enough to have EA project $4 million from in-game ads during last year's holiday quarter for that game alone.
With EA's rich pipeline and more gamers connecting their consoles online, Madison Avenue is about to be rerouted through Redwood Shores Parkway.
Speaking of the online world, there are plenty of opportunities for EA in the Web-enabled future. Whether it's casual users passing the time with Pogo.com's laid-back games or hardcore fantasy battlers duking it out on Mythic's Warhammer, EA is in the game. It's also a player in mobile gaming.
What really excites me about the Web is the number of folks who are paying up for accessories. Shortly after the holiday release of Need for Speed: Carbon, EA sold 90,000 virtual cars through Microsoft's
Value in growth
Analysts see EA earning $1.99 a share next fiscal year. Paying nearly 30 times next year's profitability may seem expensive, but EA is worth it. It's growing its earnings at an increasingly fast pace these days. It has also actually beaten Wall Street's bottom-line targets in each of the past six quarters.
The future will be even more rewarding for the publishers of in-house titles. EA owns 40% of the properties behind its titles, while rivals such as Activision
So why would you bet against EA? I can see why you'd want to buy into retailer GameStop
Activision, GameStop, and Electronic Arts have been recommended to Motley Fool Stock Advisor newsletter subscribers. Microsoft is an Inside Value stock pick. Want to play? The game is free for the next 30 days with free trial offers to either newsletter service.
Longtime Fool contributor Rick Munarriz loves playing video games, but he doesn't own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.
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