Investors in the gaming stock space have had a lot to process of late, with Microsoft’s blockbuster deal to buy Activision Blizzard and Take-Two’s acquisition of Zynga. But competitor Electronic Arts (Electronic Arts Stock Quote, Charts, News, Analysts, Financials NASDAQ:EA) should be on your radar, says portfolio manager Lorne Steinberg, who thinks EA’s solid list of titles including FIFA and John Madden Football help make the stock worth a look going forward.
“They got hit by a little bit from the tech selloff but also as the world’s been opening up the expectation is a lot of gamers would have less time to play games,” said Steinberg, president of Lorne Steinberg Investment Management, speaking on BNN Bloomberg on Thursday.
“That being said, this company’s revenues are growing at still ten per cent per year, the stock is even cheaper than it was and for us it’s a compelling purchase here,” he said.
Ahead of EA’s fiscal third quarter earnings due on Tuesday, the gaming company posted revenue of $1.826 billion in its fiscal second quarter, delivered in early November, which was up from $1.151 billion a year earlier. Net income was also up to $294 million compared to $195 million for the previous year quarter. Net bookings for the trailing 12 months were $7.077 billion, up 27 per cent year-over-year. (All figures in US dollars.)
“This was the strongest second quarter in the history of Electronic Arts, with more players around the world joining and engaging in our leading franchises, new launches and live services,” said CEO Andrew Wilson in a press release.
“Thanks to our incredibly talented teams, we’re excited to deliver more amazing experiences this holiday season, and connect hundreds of millions of players around the world through our EA SPORTS games, Apex Legends, Battlefield 2042 and more,” Wilson wrote.
Management was upbeat on the remaining two quarters of the fiscal year, as well, calling for full-year revenue of $6.93 billion compared to the earlier forecast of $6.85 billion and net income of $583 million compared to the previous $456 million. For the fiscal third, EA is expecting revenue of about $1.750 billion and net income to be down to $5 million for diluted EPS of $0.02 per share.
The big news of late has been the takeover of Activision Blizzard, home of the Call of Duty, World of Warcraft and Overwatch franchises, by Microsoft. The $68.7-billion all-cash deal — by far the largest acquisition in Microsoft’s history and one that will be looked over carefully beforehand by regulators — has been framed as part of Microsoft’s bid to be a leader in the developing metaverse, the virtual reality environment billed as the future centre of entertainment and commerce and one on which fellow tech giant Facebook has already gone all in via its rebranding as Meta.
“Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms,” said Satya Nadella, chairman and CEO, Microsoft, in a press release announcing the acquisition. “We’re investing deeply in world-class content, community and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive and accessible to all.”
Earlier in January, Grand Theft Auto publisher Take-Two Interactive made its own waves announcing its plans to buy FarmVille maker Zynga for $12.7 billion. Take-Two is expected to use Zynga’s expertise in mobile gaming to deliver mobile versions of its own titles.
As for Electronic Arts, last year the company made the $1.4-billion acquisition of Playdemic, a mobile game developer from Warner Bros. Games that makes the Golf Clash game.
“Playdemic is a team of true innovators, and we’re thrilled to have them join the Electronic Arts family,” said Wilson in a press release last June. “In addition to the ongoing success of Golf Clash, the talent, technology and expertise of Playdemic will be a powerful combination with our teams and IP at Electronic Arts. This is the next step building on our strategy to expand our sports portfolio and accelerate our growth in mobile to reach more players around the world with more great games and content.”
For Steinberg, Electronic Arts has been making the right moves to keep developing and expanding.
“They have some of the great franchises like FIFA, John Madden Football and a whole slew of other games,” Steinberg said. “They’re also participating in and getting increasing margins from online gaming and services.”
“So, they’re in growth mode, and it’s a really fine company,” he said.
Electronic Arts’ share price has looked fairly range-bound over the past year and a half, staying within the $125-$145 area. The stock finished last year down eight per cent while so far in 2022 EA is about even.