BW Online | April 30, 2001 | On Top of Its Games

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APRIL 30, 2001

INSIDE WALL STREET
By Mara Der Hovanesian

On Top of Its Games

Mara Der Hovanesian

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Chart: A Mounting Score

INSIDE WALL STREET

On Top of Its Games

A Shot in the Arm for Cardinal?

Apache Is Ready for a Gusher

For Electronic Arts (ERTS ), the party may have only begun. Shares of the No. 1 maker of game software have zoomed 40% this year--hitting a 52-week-high of 59 on Apr. 18--but there's still room to play, say some pros.

The electronic-game industry, which produced the likes of Mario and Myst, is "on the cusp of a five-year cycle that is potentially enormous--and Electronic Arts dominates," says equity analyst Edward Williams of Gerard Klauer Mattison. EA's new generation of games will hit the $20 billion worldwide retail market just as Microsoft, Nintendo, and Sony roll out new versions of the GameCube and PlayStation consoles on which games are played. And the market is expanding: Better graphics have boosted the base of users from just children to adults. "It's more of a mass market now," says Williams.

Not that there aren't volatility problems. Case in point: A news item--speculating whether Microsoft might stall the launch of its Xbox video game console--pushed EA down 9% in one day. It quickly recovered, but the rumor revealed a sore spot: potential console shortages. That's "the kind of problem you want to have," says Williams. "We're not suffering from a demand issue here." The Electronic Entertainment Expo (E3) in May could fuel stock gyrations before EA settles in a trading range. That could provide a buying opportunity before the holiday season heats up, says Heath Terry of Credit Suisse First Boston: 75% of game sales are made in the fourth quarter. Terry's yearend target is 70. He expects earnings to grow from 17 cents a share last year to 50 cents this year and $1.60 in 2002. "The big year is next year," Terry says.

Gene Marcial is on vacation.

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