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To: Slumdog who wrote (121415)	3/24/2001 9:50:18 AM
From: H James Morris	Read Replies (1) \| Respond to of 164684

Will the money continue to flow into ERTS? Staff Reporter 3/23/01 9:07 PM ET In a market that offers even the most farsighted little visibility, investors seem to believe that video-game maker Electronic Arts (ERTS:Nasdaq - news) holds the promise of 20-20 vision. The stock is trading at more than 60 times its projected 2002 earnings, more than double its closest competitors. And analysts are slapping buy recommendations all over the stock, despite the bubble-era valuation. Since the beginning of the year, a time when the Nasdaq Composite Index has lost 22%, EA's shares have gained nearly 20%. Why, you ask, is a software company trading at this high after the carnage dealt most tech stocks? Investors' puppy love with the Redwood City Calif.-based software publisher is based on more than good looks. Market leader Electronic Arts, with titles such as Madden NFL 2001 , is well-positioned to dominate the handful of new turbo-charged game consoles that will hit the market later this year. The company is also poised to be the top online gaming company with its subscription-based site EA.com. Not everybody feels the same love for EA's stock, though. "Right stock, wrong price," says Nicholas Moore, portfolio manager at Jurika and Voyles. Googly-eyed buyers should realize that their confidence assumes that video-game spending will increase substantially as the new game boxes are released. They are also ignoring the possibility that console launches may not go as smoothly, or promptly as expected, or that new competition has popped up in recent weeks. EA's closest public competitors, Activision (ATVI:Nasdaq - news) and THQ (THQI:Nasdaq - news), trade at more reasonable levels, with price-to-next-year's earnings ratios of about 30 and 19, respectively. Still, analysts pound the table for this stock, usually repeating the sell-side mantra that it is long-term buy, not a short-term bargain. "Electronic Arts ended the calendar year as the No. 1 third-party games publisher, the No. 1 PlayStation2 publisher, and the No. 1 maker of PC games," wrote UBS Warburg analyst Michael Wallace, who rates the stock a buy. (His firm hasn't done recent underwriting for EA.) Wallace added that he expects the company to be a leader in online gaming, and in the market of the so-called next generation 128-bit consoles. "Since its launch in October, EA.com is off to an impressive start ... we believe the site has grown its membership base to more than 1.2 million registered users," wrote Wallace. Electronic Arts already has established itself as the dominant publisher for Sony's PlayStation2 game box, released last fall. According to market research firm NPD Data, the company has a 44% U.S. market share. Analysts generally agree the company is in a good position to be one of the leading producers for Microsoft's (MSFT:Nasdaq - news) much-hyped Xbox console and Nintendo's GameCube, both due out in the fall. Analysts polled by Multex.com anticipate EA's earnings per share to grow from a penny-a-share loss for the year ending March 1, to a positive 72 cents per share for the year ending March 1, 2002, as growth spurred by the new consoles picks up. EA also uses its $6.9 billion market cap to elbow out competitors when vying for institutional investors. More than 85% of the company's shares are held by institutions. "EA is really the only way that mid-cap portfolio managers can play the space, for liquidity purposes. All of its competitors are below the $1 billion market cap," said Gerard Klauer Mattison analyst Edward Williams, who rates the stock a buy. (His firm hasn't done underwriting for EA.) But regardless of how sound the company's position may be, at $50-plus how much upside is left? Not even the savviest economist knows how tight the economy is going to clench. And no one can predict with certainty how well the newest batch of video consoles will perform - let alone if they will be released on time. Remember the PlayStation2 fiasco? EA's revenue stream was, and still is, highly dependent on the reliable delivery of the consoles. When Sony suffered parts delays earlier this year, EA took much of the blow. (Sony recently announced that production problems are resolved.) Finally, analysts haven't begun taking another snarling competitor into account. Sega recently announced that it will no longer produce its Dreamcast console, and will now be able to freely produce its popular game titles, such as NBA 2K1 for other consoles. Within a year or so, EA will have a serious rival treading on its sports-games turf.