Electronic Arts (ERTS)

A new management team has completely reinvigorated the company. New ideas are being explored, new games are being developed and new franchises are being established. Some of these inroads will fail to materialize, but others could potentially lead to massive windfall profits.

This can be seen in the recent awards given at the various game shows, including E3 where EA garnered the most awards for the upcoming lineup of new games. EA has increased development time for various titles to increase overall quality. With a larger install base, and games that have garnered critical acclaim from the past months we should see a sizable increase in EA's coffers in the coming months.

Rumors of MSFT acquiring ERTS has been around for some time now and it looks likely to take steam although some analyst still disagree.

ERTS shares recently rose 8.9% to $20.17 on more than twice its average daily volume over the past 30 days. The stock hit a high Wednesday of $20.33, the first time it was above $20 in more than a month. MSFT shares added 1.6% to $26.17.

The gains by ERTS seem driven by the takeover speculation. Volume in Electronic Arts calls options contracts also skyrocketed. Activity in calls often rises when a company is in an industry expected to consolidate. Marcus.tan.yi.wei 16:04, September 24, 2009 (PDT)

Reference

"Electronic Arts Shares Surge On Microsoft Takeover Chatter " Article from Wall Street Journal

Electronic Arts strong cash-flow history breeds much confidence in the future, especially in that the company has been able to consistently negotiate success in the cyclical console gaming arena.

Electronic Arts has the power of economies of scale to help maintain its dominant position. EA's free cash flow allows it to acquire the companies who pose challenges and competition while further improving the company.