Last year, Electronic Arts (Electronic Arts Stock Quote, Chart NASDAQ:EA) and other gaming stocks got smashed by the Fortnite juggernaut which virtually came out of nowhere and left traditional console-based game-makers in the dust.
What’s the way forward for EA? If you can’t beat ‘em, join ‘em, says portfolio manager Kim Bolton of Black Swan Dexteritas, who sees a gaming industry in transition
“We did own [Electronic Arts] but we got out of it in the early fall of last year,” says Bolton, founder and president at Black Swan, to BNN Bloomberg on Wednesday. “They had a great run from mid-2017 to mid-2018. But there’s been a movement within the whole gaming industry to go away from hardware consoles and PCs into mobile. A lot of these companies like Take Two, Electronic Arts and Activision Blizzard are in this transition, and you can see it reflecting in the stocks.”
Electronic Arts had been on a spectacular run for a good half-decade, gaining more than 1200 per cent between mid-2012 and mid-2018. Then the roof caved in and the stock dropped from a high of $151.26 in July of last year to a low of $73.91 by late December. Like the rest of the tech sector, the stock has climbed in 2019, currently sitting up 16.5 per cent year-to-date. (All figures in US dollars.)
EA’s last quarterly report came in early February where the impact of free-to-play competitor games like Fortnite clearly registered in the company’s top line which came in at $1.17 billion, much lower than the consensus expectation of $1.47 billion. CEO Andrew Wilson pointed to poor performance from EA’s Battlefield V as well as greater competition in the sector as the culprit, saying, “As our competitors continued to build momentum, whether that was ‘Fortnite’ or ‘Red Dead Redemption 2’ or ‘Call of Duty,’ we continued to stall from where we needed to be.”
Bolton says that the evolution of the industry will continue to be felt in the share prices of stocks like EA.
“It’s a big change to actually take [their products] from a PC or console to a mobile unit but that’s what the consumer [wants], and it reflects in the stock prices, how they’ve actually pulled back,” he says.
Electronic Arts is set to report its fourth quarter and fiscal year 2019 financials on May 7.
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