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Analyst: EA's Casual Move A 'Significant Growth Opportunity'

Analyst: EA's Casual Move A 'Significant Growth Opportunity'

June 6, 2007 | By Jason Dobson

June 6, 2007 | By Jason Dobson
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In his latest note to investors, Lazard Capital Markets' Colin Sebastian has commented on the recent establishment of EA Casual Entertainment, a new Electronic Arts division focused on developing and publishing casual game titles, calling the move a significant growth opportunity for the company.

Leading EA's new casual games division is former Activision Publishing president Kathy Vrabeck, an appointment that Sebastian described as a positive development for EA, as it brings to the company a proven industry leader and adds to management bench strength.

In addition, the analyst added belief that the announcement provides some direction on other potential changes to EA's organizational structure as planned by new CEO John Riccitiello. Riccitiello rejoined the company in April, a move that at the time Sebastian noted as a positive one for the company.

Although EA has yet to announce specific franchises and licenses to be developed and published by the casual games division, we note that the company's highly profitable Sims or Pogo units could serve as a model for organizing development studios by genre and product rather than by geography, added Sebastian.

Not only does the analyst view the casual game market as a positive resource for Electronic Arts, but also for the larger video game industry, which he believes can benefit from shorter and more efficient game development cycles.

Explained Sebastian, We think casual games also provide an opportunity to improve operating leverage by shifting more development work to lower-cost studios such as EAs Canadian operations. We note that EA has established strong early positions in the online/mobile/handheld markets, which consist largely of casual games. Moreover, we believe the early success of Nintendo's Wii and DS platforms suggests solid demand for casual content across multiple platforms.

Lazard has maintained its $60 target price for shares of EA, which opened trading today at $49.90, and are currently up slightly at $50.42 per share.


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