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EA shares jump 9% on analyst optimism over upcoming Star Wars game

August 11, 2011 |  2:01 pm

Star Wars The Old Republic

Electronic Arts Inc. shares jumped nearly 9% Thursday after a Wall Street analyst with Cowen & Co. upgraded the game publisher's stock, citing confidence in EA's upcoming release of an ambitious online game based on the "Star Wars" franchise.

In a report entitled, "Yes, Virginia, we are going positive on ERTS shares," Cowen analyst Doug Creutz boosted the company's rating of EA to "Outperform" from "Neutral," a rating that the company has assigned to EA since 2005.

Creutz, who called his firm a "longtime skeptic" of EA, said the upcoming Star Wars: The Old Republic has the potential to "have a significant impact on EA’s overall margin structure." He estimated that EA could sell 3 million copies of the game in the first year and garner more than 2 million subscribers who would pay monthly fees to play the game online.

Star Wars: The Old Republic would compete in the same game genre as World of Warcraft, whose 12 million subscribers have contributed billions of dollars in profit over the years to the game's developer, Blizzard Entertainment in Irvine.

Although EA has not nailed down a launch date for the title, the company started taking orders for the game in July on retail sites such as Amazon.com and Gamestop. In his report, Creutz noted that  advance orders for Star Wars made it the best-selling game on Amazon during the first week of becoming available.

"Since the title went available for pre-orders three weeks ago, it is clear that demand is
quite high," he wrote.

The game is being developed by BioWare, a studio EA purchased in 2007 along with another developer, Pandemic, for $860 million. Since then, BioWare has churned out some of EA's best-selling games, including its Mass Effect and Dragon Age series.

Star Wars is arguably BioWare's most ambitious, and expensive, undertaking to date. But the company is aiming high at the winner-take-all market for so-called massively multi-player online games, or MMOs, currently dominated by Blizzard's World of Warcraft.

"Given the resources that have been put into Star Wars, and BioWare’s overall track record of extremely high-quality output," Creutz concluded, "we are willing to give them the benefit of the doubt."

That, apparently, was enough to push EA's stock up $1.53 to close at $19.15, up 8.7%, higher than the overall 4.7% gain on Nasdaq as stocks overall rebounded Thursday.

-- Alex Pham

Twitter/ @AlexPham

Screen shot of Star Wars: The Old Republic. Credit: Electronic Arts / BioWare.

 

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