Street smiles on Electronic Arts

Yesterday, Electronic Arts delivered unexpected news, beating Wall Street expectations for the second quarter and upping guidance through the company's full fiscal year, which ends March 31, 2007. Traders on Wall Street reacted with a vengeance, first bidding up EA shares in after-hours trading Thursday, then continuing the feeding frenzy today.

By the time Friday's closing bell tolled, shares in the game publisher had climbed 11.77 percent to close at $58.24, up $6.84. Intraday trading saw the stock barrel through resistance at breaking through the $58 barrier it had encountered earlier during the week, momentarily threatening to peek through the clouds of $60 with a trading price of $59.85 mid-morning, before finally settling on its closing tally of $58 and change.

Trading was heavy with nearly 16 million shares traded Friday, well north of its usual volume of 3.5 million shares.

Today's spike in the share price of EA was impressive not only in its own right, but also for its win against the overall market trend--while EA roared, the Dow, the NASDAQ composite index, and the SP 500 all retreated (with the DJIA closing below 12,000 for the first time since mid-October, falling for a sixth consecutive day).

The sweet smell of success, of course, wasn't limited to the most recently completed quarter; EA execs reversed their outlook for the full fiscal year. They now project FY revenues of $2.95 billion to $3.125 billion, up from earlier guidance of $2.8 billion to $3.0 billion.

But even the sky may not be the limit: "We think that several factors could drive revenues even higher," Wedbush Morgan's Michael Pachter said in a memo to investors today. "First, our model presumes only modest contribution from mobile phone games, and EA's mobile phone business appears to be growing at a rapid rate. Second, we assume no contribution from microtransactions. It is possible that this category could drive revenues significantly higher year-over-year for the next several quarters," Pachter said.

Analysts across the board were impressed with EA's five-point plan for long-term growth. with Pachter summing up the sentiment, adding, "We are also encouraged that the company has identified five growth opportunities that expand its earnings power beyond growth of the packaged goods industry."

EA is investing heavily in online games (with its acquisition of Mythic), casual games (Pogo.com), mobile games (through the company's Jamdat acquisition), in-game advertising (partnerships with Massive and IGA Partners), and the above-mentioned microtransactions applied against downloadable content.

"We think that the [total] market opportunity for each of these five areas is between $1-4 billion over the next 10 years, with an expected combined addressable market of $10-20 billion. Should EA capture 20 percent share of this opportunity, the company can be expected to generate incremental revenue of $2-4 billion by 2015," Pachter concluded.

The voluminous Jim Cramer, host of TV's Mad Money and writer for TheStreet.com said today that "Electronic Arts is done going down, having made the numbers and then some."

Looking ahead, he predicted "smooth sailing" for the publisher through the console launches, and then some: "The fact that [EA] had a good quarter ahead of that is amazing."

In after-hours, traders took just a bit of the bloom off EA shares, bidding the stock down by a quarter.