Electronic Arts’ (EA, Financial) upward momentum started in 2013. Since then, the stock has managed to reward shareholders with strong returns each year.
In 2016, the stock was up nearly 15% and is off to a marvelous start this year as well. Recently, the game publisher reported robust third-quarter results. In the third quarter, the company posted earnings per share of 0 cents, beating the analyst estimates by a wide margin of 16 cents. On the other hand, the company’s revenue came in at $1.15 billion, $20 million more than the consensus.
The foremost reason behind the company’s amazing performance was the sturdy sales of "FIFA 17" and "Battlefield 1." Basically, Electronic Arts consists of several other large franchises such as "Mass Effect," "The Sims," "Need for Speed," etc. Among all the franchises, FIFA plays a most significant role as it is responsible for generating a major portion of the company’s overall revenue.
Surprisingly, "FIFA 17" turned itself into the fastest-selling FIFA ever. "FIFA 17" bested itself with a record-breaking launch that sold approximately 18% more than "FIFA 16" in the U.K. Furthermore, in 2016, "FIFA 17" (PS4) managed to accomplish second position in the top-selling console games list globally.
There are only two top soccer games available in the market, "FIFA 17" and "PES 17." As a matter of fact, Konami is doing a great job as it continues to improve the gameplay of Pro Evolution Soccer every year. However, despite all the efforts, "PES 17" sold 40 times less than "FIFA 17" in its first week in the U.K. which clearly suggests that Konami will not be able to hurt Electronic Arts’ FIFA sales in the near future.
On the other hand, almost every game publisher is now belligerently focusing on digital sales as it helps to enhance the profit margin. In the most recent quarter, the company’s digital sales were a record $1.1 billion, a surge of $288 million compared to a year-ago quarter.
The rise in digital sales reflects the robust growth in digital downloads and approximately $50 million of digital net sales originated from the launch of "FIFA 17." Most importantly, digital sales now signify nearly 60% of the company’s overall business.
Apart from this, according to a report from PwC, the U.S. video game industry is projected to grow at a compound annual growth rate (CAGR) of 3.6% from 2015 to 2020. Moreover, the worldwide video game industry is projected to reach $90 billion in 2020 which represents even better compound annual growth rate of 4.8%.
Electronic Arts appears to be in a great position to gain huge benefits from this trend.
Summing up
Over the past several years, Electronic Arts has managed to perform amazingly well and will likely continue to do so. The company’s latest installment of FIFA is on its way to becoming the best-selling FIFA of all time. The latest installment of "Battlefield" also continues to outperform its previous installment as its unique player base is almost 50% larger than that of "Battlefield 4."
Apart from this, the company’s digital sales are also growing at a healthy pace that positively impacts its profit margins. As a result, shareholders should continue to hold the stock for huge gains in the future.
Disclosure: No position in the stocks mentioned in this article.
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