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Electronic Arts: A Stock with Truly Gigantic Potential

May 21, 2014 | About:
abirk

abirk

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The worldwide video game marketplace is gaining momentum. This market is comprised of video game console hardware and software, online, mobile and PC games. As per Gartner Inc. (IT), this market will reach $111 billion by 2015 (up from $79 billion in 2012). In this gaming world, there is a great player who has recently performed well.

About the Great Player

Gaming giant Electronic Arts Inc. (EA) develops a diverse range of brands and brand categories — action-adventure, sports, shooter, simulation, strategy and social — that can be played on gaming consoles, tablets, mobile devices and the Internet. With a market cap of $10.71 billion, it operates within the Multimedia and Graphics Software industry, developing, marketing, publishing and distributing gaming software and services. Throughout its history, this video game developer and publisher has set the standard specifically for sports gaming, with such titles as Madden NFL, NHL, NCAA basketball and football, and FIFA. The firm holds many other massively popular titles such as Mass Effect, Dead Space, Battlefield, The Sims and Star Wars: The Old Republic.

Tracking the Performance

On May 6, 2014, this video game developer and publisher reported its fourth fiscal quarter ended on March 31, 2014. The company’s performance in fiscal 2014 was above expectations. In the fourth quarter Electronic Arts delivered revenue an EPS above its guidance. The company exceeded its full year guidance by generating $4.02 billion (up 6% over the year) in non-GAAP revenue and delivering a $1.69 in EPS, doubling its EPS from fiscal 2013.

From the above chart, it can be seen that the company’s fourth quarter revenues fell 12% over the year to $914 million, but was above its guidance of $800 million. Non-GAAP diluted earnings per share of $0.48 fell from the previous year's $0.55, which is above its guidance of $0.09.

Compared to last year, company’s segment wise performance (shown in the chart below) was not so impressive. Digital revenues fell 11% over the year to $550 million, and published and packaged revenues fell 12% over the year to $350 million. Further, distribution revenues fell 46% to $14 million.

The gaming giant’s mobile revenue set a new record by contributing revenues of $460 million for the year, with over 130 monthly active users and EA mobile games downloaded 143 million times. EA’s Ultimate Team services generated more than $380 million in fiscal year 2014, with Madden Ultimate Team growing 90% year-over-year. Operating cash flow of the company for the fiscal year was $712 million, more than doubling last year’s operating cash flow of $324 million.

Positive Outlook

Electronic Arts expects revenues of $700 million for first quarter fiscal year 2015, and revenues of $4.1 billion and EPS of $1.85 for full fiscal 2015. The company’s total guidance for fiscal 2015 has been provided in the chart below.

The company has authorized a new program to repurchase up to $750 million of EA’s common stock. This new stock repurchase program, which expires on May 31, 2016, supersedes and replaces the existing stock repurchase authorization approved by EA’s Board of Directors in July 2012.

Growth

Recently, Electronic Arts released a huge amount of games for Apple (AAPL) store, Facebook (FB), and Google (GOOG) store. These games are mainly in terms of platforms. In the fiscal fourth quarter, EA titles represented 40% of Western World combined title sales for the PlayStation 4 and Xbox One. Calendar year-to-date, FIFA 14, Titanfall, and Battlefield 4 were three of the top five bestselling titles across all platforms in the Western World. A chart has been provided below to show the company’s growth trends.

Charts from company website

On a Concluding Note

Electronic Arts has managed to deliver worldwide successes in the past year, and it will continue to do so in 2014. Further, the worldwide video game marketplace is gaining momentum, and EA has shown signs of great continued growth in its operations and earnings. The company also has announced FIFA World Cup 14, EA Sports UFC, FIFA 15, Madden NFL 15, NHL 15, The Sims 4, NBA Live 15, Dragon Age: Inquisition, TBA, and Golf Title TBA for fiscal 2015. Overall, Electronic Arts is greatly diversified by a large portfolio on many platforms and I am therefore pretty bullish that it will not let its valued investors as well as customers down in the near future.


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