No one can say how big eSports are going to get, but video game company Electronic Arts (NASDAQ:EA) has served itself well by getting in on the ground floor, says Barry Schwartz of Baskin Wealth Management.
Redwood City, California-based Electronic Arts saw its share price hit a record high of US$147.13 on June 14, with the stock now up 38 per cent for 2018. The company has seen its competitive tournaments for games like Madden NFL, FIFA and Battlefield explode over the past 12 months, with management saying its not taking its foot off the competitive gaming pedal anytime soon.
“Fiscal 2018 was a year of strong growth and continued transformation for Electronic Arts, as we expanded the reach of our leading franchises like FIFA, Battlefield and The Sims to more players across more platforms and geographies,” said CEO Andrew Wilson. “In the year ahead, we will expand the world of play with amazing new experiences and new IP (intellectual property), more competition, and industry-leading subscription programs.”
EA reported its fiscal year end financials in May, which featured consensus beats for FQ4 on an EPS of $1.27 and sales of $1.26 billion (all figures in US dollars) versus the Street’s $1.16 and $1.23 billion, respectively.
Schwartz says the competitive eSports wave could be huge for companies like EA and its competitor Activision Blizzard, whose Overwatch league is now operating with 12 teams, sold for $20 million each.
“I’m fascinated by this eSports potential,” Schwartz told BNN Bloomberg this week. “In India, you have cricket, which maybe doesn’t translate so well in North America. Here, we have baseball, which may not translate so well … but video games — everybody likes killing stuff (in the virtual world).”
“The problem [with Electronic Arts] is that it’s a hit-and-miss business,” says Schwartz. “They can have a blockbuster and then a [Fortnight by Epic Games] can come out of nowhere and it’s no good for their Battlefield game.”
“Part of it is a fashion business but the other part is that they keep recycling these titles that they have and just generating lots of cash,” he says. “We’re interested and we’re paying attention to some of these names and we may pull the trigger on something like this because the runway of opportunity is pretty significant.”
EA’s subscription business has been growing and currently is worth an estimated $3-billion. The company is on track to become the “Netflix for video games,” says Needham and Co. analyst Laura Martin to CNBC.
“It is our view that millennials want to rent content (eg, Spotify, Pandora, Netflix, Hulu) rather than own it,” says Martin, “and that content companies with data about what their consumers view/play/use create valuation upside from programming, eCommerce, and advertising revenue streams.”