The month of April will be a crucial one for Electronic Arts (EA, Financial), and we could expect celebrations for the team and also the investors, as the next franchise of the Star Wars Battlefront game would get launched in the market. The company has been taking cautious steps of late by creating products of high quality instead of trying to concentrate on sales volume such as the “Star Wars” that would be unveiled at Anaheim, California, between April 16 and April 19. The performance in the recent past has shown some impressive numbers, with the $1.43 billion as revenue generated in the recently reported third quarter which marked a 12% hike from the earlier estimates but happened to be a figure 9% lower when compared on a year-over-year basis. However, with this new game coming into the market, Electronic Arts is expecting its stock price to witness a raise, like in the past three months where the stock price has gone up from $43 to $57 primarily attributed to the holiday season when most of the buying occurred. Despite such an upward movement of the stock, Forbes is still being a bit cautious on its stock price estimates and currently perceives the price to touch $54 which is about 5% below the current market price. Let’s find out how Electronic Arts expects to perform this year, and if there are any rivals, we need to know about them as well.
Elements ushering a brighter financial position
The reason why Electronic Arts is headed for a great 2015, is not just for the Star Wars Battlefront title alone, but for what it has been doing in the recent past.
The year 2014 proved to be a notable year for Electronic Arts, simply for the fact that the FIFA World Cup took place in the year. Electronic Arts managed to tap into this extra enthusiasm by giving consumers the special edition of 2014 FIFA World Cup Brazil game, which went off the shelves at a rate of 3 million units in around four weeks, on both the Playstation and XBox consoles. Later, there was the annual edition of the FIFA 15 title which saw sales of 5 million units in the first week of the release. This momentum could carry on further with marginal improvement in sales volume in 2015, as per Trefis estimates. 2016 should be another opportunity because of the UEFA Euro 2016 Championship, which could add on volumes for the FIFA franchise.
Backing the most popular titles is the path Electronic Arts has undertaken for witnessing long term growth. It means that instead of randomly increasing the titles, the company is actually looking into the ones it already has and trying to find out what seems to be working best for it in terms of sales volume and revenue. Thereafter, it’s banking on renovating and innovating those titles such as the Battlefront title. This method has a positive impact on the accounting books, which aids to limit the CAPEX (capital expenditure) to manageable numbers.
The 2015 line-up is supposedly packed with 11 renovated gaming titles, which includes the Star Wars Battlefront, Battlefield Hardline and Need for Speed which would cater to the most popular genres.
Competitor watch
Electronic Arts has an immediate contender –Â Activision Blizzard (ATVI, Financial) which is known to be the maker of "Call of Duty" (COD) title. In 2013, the company had received a decent amount of hate for a stale storyline based on the Ghost edition. However, in 2014 the company bought in the COD: Advanced Warfare, which changed the rules of the game for Activision Blizzard, literally for the fans of the title. New features like introduction of exo suits got a new generation of likers for the game, but older fans of the series felt disappointed, hence the World War II setting was bought back eventually. Also, by the end of March 2015, there will be the release of "Call of Duty: Advanced Warfare Ascendance" which would be the second major content pack for the series "Call of Duty: Advanced Warefare," and Xbox One and 360 will be the ones to receive the update, ahead of owners of PS4, PS3 and PC. In the genre of action games, Activision still remains a leader ahead of Electronic Arts.
The market has also reacted well to the developments in Activision Blizzard, with Standard & Poor upgrading their rating on the stock to BB+, based mainly on the operating results and some of their recent titles that have done well. The EPS growth rate is currently pegged at 19%, whereas the dividend yield is around 1.4%, and the stock price is hovering around the $23.35 mark.
Final thoughts
Electronic Arts has currently adopted the right core strategy of enhancing the current titles that have been doing well, which could aid in lowering costs, and yielding better returns in terms of sales volume for the company. In 2015, the company will also be introducing Battlefield Hardline and Need for Speed, which are important upgradations in the pipeline for offering loyal customers specific enhancements on their favourite titles. Taking such facts into consideration, Electronic Arts looks to be a "buy" or "hold" stock for the time being.
