Electronic Arts: Too Strong To Be Left Out

Summary

• Electronic Arts will continue to benefit from multiple tailwinds driving the valuation of stocks in the gaming industry.
• It is also investing to improve its mobile titles to diversify growth.
• The company has the resources to keep improving its competitive positioning.
• I find its valuation attractive at the current price.

Source: FIFAUTeam

Electronic Arts (NASDAQ:EA) has benefitted from favorable macro trends driving demand for video games. I expect these trends to continue heading into CY'21. EA has released a couple of sports titles that have been met with mixed reviews. Despite this, I expect the tailwinds induced by COVID-19 to drive engagement across its titles. The wait for the upcoming console refresh season has impacted physical game sales. Regardless, the long-term trend is for more digital game sales. This will drive margins expansion and bookings.

I expect EA's valuation to continue the upward trend given the sufficient catalysts driving the demand for its titles. These include the growing population of gamers, the proliferation of mobile phones, cheaper internet facilities, the rise of cloud platforms, and esports. I expect these trends to drive high-single digit revenue growth in the next five years. I also expect EA's investment in mobile titles to improve its monetization opportunity. This will be supported by engagement growth, driving in-app monetization opportunities. Given these reasons, I will be maintaining a Bullish rating.

Demand

The World’s 2.7 Billion Gamers Will Spend $159.3 Billion on Games in 2020; The Market Will Surpass $200 Billion by 2023 - NewZoo

The gaming industry has enjoyed solid tailwinds in recent quarters. This adds to the growth trends driven by mobile games, esports, and the adoption of digital subscriptions. Mobile games have benefitted from the declining cost of smartphones and cheap access to internet facilities by millions of gamers worldwide. The growing reward pool and increasing monetization trend of collaborative games have driven the growth of esports. The upcoming holiday season will usher in new consoles, ensuring that the strong performance of the gaming industry is extended into 2021.

EA has benefited from most of these trends. Its top titles have also led the

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.