EA beats the market: 3 reasons why you should buy stocks

Investor expectations are not high Electronic Arts (EA 0.50%) in the early months of 2022. Its shares have fallen 15% this year on worries about slowing consumer spending and poor reports from rivals. Activision Blizzard (ATV 0.84%)and worried about how the company’s comparisons might look when the pandemic increases the amount of time people spend playing video games.

EA allayed all of these concerns with its strong fourth-quarter fiscal 2022 earnings report on May 10. The report put the stock on an upward trajectory.It’s up nearly 20% this month and more than 5% year to date — far outpacing the market S&P 500, down about 12.5%. But it’s not too late for investors to buy EA’s stock. Here are three reasons.

Image credit: Getty Images.

1. Its sports franchises are the gift that keeps on giving

EA has long been known for its sports games, especially the popular fifa football and Madden Football Franchise. These games have little direct competition and have built up huge player bases over the years. This allows EA to sell fans new copies every year, updated with the latest players and stats, and a ton of different add-ons and virtual features. Management didn’t give specific financial numbers for its EA Sports division, but said in its latest earnings report, fifa football has over 150 million active accounts, and FIFA 22 It was the most successful game in team history.

EA Sports’ deal with FIFA over naming rights to football video games just lapsed.After this year, franchise releases will carry names EA SportsInvestors seemed concerned at first, but the deal in question was only for the title of the game and the rights to the official World Cup esports tournament. EA Sports still owns the “name and likeness” rights to all major football leagues and players around the world, which should preserve video gamers.Other companies can make football sims, but if they can’t provide gamers with the ability to play virtual pitches with players like Lionel Messi and Cristiano Ronaldo, I doubt they will EA Sports release.

This Madden Football Given that there is only one professional NFL, the licensing model for franchises is simpler. EA has secured an exclusive license for the professional football sim for 2025 or 2026 (depending on whether the NFL wants to extend it for a year). These licensing dynamics have made the sale of EA’s sports franchises some of the most durable revenue streams in the video game industry.

2. Apex Legends mobile here

The biggest success in EA’s portfolio of games over the past few years has been Apex Legends. The battle royale shooter is currently the fifth most popular game on the streaming platform Twitch and now has over $1 billion in annual net bookings (equivalent to video game revenue). Given EA’s $7.5 billion in net bookings during its fiscal 2022 (ended March 31) period, the franchise currently accounts for at least 13% of the company’s revenue.

Additionally, in fiscal 2022, Apex Legends‘ Net bookings were up 40%.Recently, it launched a mobile game called (you guessed it) series Apex Legends Phone. It’s only been out for a few weeks, but so far it’s gaining a lot of traction in smartphone app stores. It is currently the fourth most downloaded free app for iOS in the US. Popular mobile games can be very lucrative – for example, Call of Duty: Mobile Over $1 billion in net bookings last year – very successful Apex Legends Phone Likely to drive EA’s revenue growth over the next few years.

3. Its college football franchise is returning

In the end, EA should benefit from the revival of its NCAA college football franchise. The company decided to stop releasing new versions of the game in 2014 because paying amateur athletes was tricky. But due to new image and likeness rules that allow college athletes to get paid, EA has decided to relaunch the franchise, which is rumored to be released in the summer of 2023. The public has yet to get any details on how the franchise will work. run. But no matter how the game is monetized, it should have a positive impact on EA’s financials over the next five years.

Overall, EA is well positioned for durable revenue growth. Given the video game publisher’s strong unit economics, that makes the stock a good buy, even after it rose about 20% last month.

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