Electronic Arts’ (NASDAQ: EA) video games might not be as popular as they were in the 90s and early 2000s, but the game maker is still making good money. EA has branched out beyond sports games in recent years, providing the masses with titles like Star Wars: The Last Jedi, Star Wars: Battlefront 2, The Sims, Mass Effect Andromeda, Titanfall 2 and plenty more.
Though some of these games are massive hits, EA has also served up some sub-par games as well. The company’s stock is currently priced around $117. The stock has traded between $93 and $131 throughout the previous year. Is the video game maker still worth adding to your portfolio? Read on to find out.
EA’s Revenue Challenges
EA’s Star Wars: The Last Jedi has not raked in the revenue as the company anticipated. A month prior to the game’s release, EA made the poor decision of providing expansion packs, meaning additional game content was provided at no cost to all players. Gamers quickly lost interest in The Last Jedi after it was determined the game’s proposed in-game purchasing system equated to low-level gambling. The loot crates EA introduced were classified as gambling as the their contents were randomized. EA halted in-game purchases prior to the game’s release, causing analysts to determine the gaming company would not meet its performance estimates.
Fast forward to the next EA Star Wars game, Battlefront 2, and sales once again proved disappointing. Sales fell short of the company’s anticipated goal of 8 million units. This was no small miss. EA missed the mark on Battlefront 2 by a whopping one million units.
Despite these setbacks, the news has not been entirely bad for the gaming giant. The company’s worldwide gamer net bookings jumped nearly 40 percent compared to the same holiday in the year prior thanks to the appeal of live online services. The latest editions of EA’s most popular titles like Madden Football, FIFA Soccer and The Sims have either met or exceeded sales expectations.
Is It Time to Bail on EA?
Star Wars fans who have an interest in gaming have not proved to be the business boon anticipated by EA higher-ups. Furthermore, those who purchase the latest version of Madden Football each year are quick to testify the game’s quality has stagnated. For all the complaints about EA’s titles, the company must be commended for the fact that it has diversified its capital across numerous titles. EA has a strong foundation that will be difficult to crack in the years and decades to come.
It does not matter if a handful of EA’s titles prove underwhelming in any given year. As long as additional titles pick up the slack, the difference in revenue will be made up or at least mitigated to a certain extent.
Though critics point to the forementioned loot box fiasco as a major misstep indicative of EA’s allegedly misguided executives, company leaders prefer to refer to this unfortunate event as a learning experience. Just like every other game maker, EA can still take advantage of in-game spending as an important revenue source in the months and years to come. The company will likely add the option of purchasing items in-game at a later point in time. Such in-game purchases have proven to be a consistent and lucrative revenue stream for other gaming companies like Activision Blizzard (NASDAQ: ATVI).
The Experts’ Take on EA
EA is held in high favor by some of the top investors around the world. Fund managers and plenty of Wall Street analysts anticipate solid growth from EA in 2018 and beyond. Yahoo Finance shows the average analyst’s recommendation rating on EA is a 1.9, with 1 representing a strong buy and 5 representing sell. Out of 27 analysts, eight rate the company a strong buy, 14 rate it a buy and five advise investors to hold their position. It is clear the financial experts are bullish on EA.
Those who follow the video game industry are well aware of the fact that it is quite dynamic. The days of inviting friends over for a game of Madden or FIFA are slowly fading away. Instead, gamers are playing against one another online. Many are participating in eSports competitions. Just about every gamer is willing to fork over money for in-game purchases if the game in question has merit.
EA is reading the tea leaves and adjusting as consumer behaviors change. The company is positioned quite nicely in the eSports realm thanks to its Battlefield, FIFA and Madden titles. As an example, the CW Network’s Madden Challenge was the United States’ top eSports broadcast in 2017. Add in the fact that EA’s cash and margins continue to increase and the picture looks that much rosier. Some even expect EA to issue a dividend at some point in 2018.
Buy, Sell or Hold?
For all the hype surrounding EA, there is also plenty to worry about. The company has not capitalized on the Star Wars license as analysts and gamers expected. Though EA’s FIFA series is praised across the globe, those who know gaming are well aware of the fact that EA’s Madden series leaves much to be desired. Look for EA’s stock to stagnate or move slightly upward in the coming months. EA stock owners should hold their current position. If you do not own EA, consider adding a minor stake in the popular game maker to your portfolio.
Regards,
Ethan Warrick
Editor
Wealth Authority
