2016 was a fruitful year for Electronic Arts Inc. (EA, Financial) as the stock was up approximately 15%. The stock has been performing amazingly well this year, too, as it is up nearly 19% year to date. The worldwide gaming market continues growing at a sturdy rate, and Electronic Arts looks well positioned to gain huge benefits in the coming years on the back of its strong product portfolio.
Electronic Arts reported strong third-quarter results in January with earnings per share of 0 cents, beating the analysts’ estimate by a strong margin of 16 cents. The company’s revenue came in at $1.15 billion, $20 million more than the analysts’ estimate. In addition to the beat, the game publisher recorded year-over-year sales growth of 7.5%, down significantly from 26% in the third quarter of the previous fiscal year.
Furthermore, the game publisher’s gross margin was 55.1%, up 6.1 percentage points compared to that in the same quarter of the previous year. The foremost reason behind the company’s robust gross margin is the continuously growing digital games trend in which users download games directly to their consoles instead of purchasing them from retail stores.
According to the latest report from newzoo.com, the revenue from worldwide games market surpassed the $100 billion mark in 2016, driven mainly by strong growth in the mobile gaming segment. Moving ahead, the revenue from the worldwide games market is projected to grow to $128.5 billion by 2020, representing a compound annual growth rate (CAGR) of 6.2% throughout the forecast period.
As a matter of fact, the mobile gaming segment is expected to generate $46.1 billion in revenue this year, signifying a lucrative opportunity for the game publishers going forward. Electronic Arts appears to be in a great position to gain a significant portion of the mobile gaming market as it continues launching mobile versions of its own popular console games along with several other amazing games such as "Real Racing 3."
In the most recent quarter, net sales from the mobile gaming segment were $174 million, a surge of 7% year over year with growth led by "Star Wars: Galaxy of Heroes," "Madden NFL," "FIFA Mobile," etc.
Conclusion
Since 2013, Electronic Arts has successfully managed to end every year in the green. The stock has also displayed strong signs of upward momentum this year as well. The company consists of several robust game franchises, such as "FIFA," "Battlefield," etc.
Apart from this, the company is focusing on the mobile gaming segment which is projected to grow at a rapid rate in the future. The company’s gross margin also continues improving with each passing year on the back of strong digital games and content sales.
On the other hand, the stock currently trades at a healthy price-earnings (P/E) ratio of 23. Investors should stay with Electronic Arts as it still has massive upside potential.
Disclosure: I do not hold a position in the stock mentioned in this article.
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