Electronic Arts (EA, Financial) posted strong third quarter results that came above the consensus. It was driven by the launch of Xbox One and PlayStation 4 with expectations that gamers will buy new games for these consoles. And this migration boosted EA’s franchise titles such as FIFA, NHL, Madden NFL and Battlefield. Led by its strong performance the stock rose considerably in the past few days. In fact, it had a good rally in the past year and is currently at its 52-week high. Moreover it has a lot of positives to support this momentum in the days to come.
Looking past the results
There could be minor disappointments from its numbers for the third quarter as revenue fell around 9% to $1.428 billion from a year ago period, while earnings declined to $1.22 a share compared to $1.26 per share last year. However, the company has an exciting portfolio of video games, loved and played by millions across the world, which makes its future prospects interesting.
Battlefield 4 launched last summer gave a major boost to its growth, which was continued by “Dragon Age: Inquisition” launched in November. In fact, statistics show that Inquisition was the best selling launch in BioWare history and was named as game of the Year by 32 media outlets around the world. Its recent launch SimCity BuildIt was also a good driver with downloads of more than 22 million times in the first month.
In addition, digital revenue, which is a more profitable segment, had outstanding numbers for the quarter. The company reported an increase of 34% in its digital revenue, which is significant considering the 49% contribution it has to the total revenue. In this segment the largest contribution came from freemium and extra content such as expansion packs including maps and other game play features.
The way forward
Apart from this, mobile, PC’s and console downloads also contributed significantly to the overall growth of its business and the management is confident that it will continue to add to its top line in the coming years.
Going forward, analyst Brian Pitz of Jefferies is cautiously optimistic on the company on the back its March release of "Battlefield Hardline."One of the main reasons cited by Pitz for this caution is that, Hardline is altogether different from its previous Battlefield versions and involves cops and robbers compared to the traditional military themed play.
On the other hand, the Jefferies analyst is bullish on “Star Wars Battlefront” which would be the key highlight for 2016. The game should benefit from the promotion of its movie franchise in the star wars series by Motion Picture. These are significant launches and investors need to be on the lookout for their performance as they will strongly impact the company’s financials and ultimately the stock itself.
Conclusion
EA will continue adding exciting titles, which will be the key to its momentum. The company is already riding on the success of its titles such as FIFA 15, Madden NFL 15, SimCity and various others. We can easily assume that with its new introductions it would be able to continue the smooth sailing in the coming months. Although there might not be any significant improvement in its earnings, considering a forward P/E of 22.01 compared to trailing P/E of 22.24, but its stock price had a splendid rally in the past one year in spite of these challenges. Therefore, in the light of all the above factors, we could presume of a similar movement in the future as well.
