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Electronic Arts: This Video Game Maker Looks Set to Deliver Solid Returns

August 05, 2014 | About:

Video game maker Electronic Arts (NASDAQ:EA) has started off the fiscal year on a strong note, having reported better than expected results. Its shares have appreciated more than 57% in the last year, and more upside looks to be on the way. EA has soared mainly due to robust sales of its games such as Titanfall. EA is also expecting solid growth from the digital and PC gaming segments.

Terrific results

EA’s quarterly revenue grew 27%. Further, its net income also saw a substantial rise of 50.9%. Its net operating cash flow increased 101.61% to $4 million. Further, the company is expecting better results in the future on the back of new games.

EA is expecting better results in the future as it is focusing on various aspects to improve profitability. It is aligning itself to deliver fresh content to gamers by enhancing the gaming experience and bringing out new titles. Mobile and PC gaming also presents a profitable opportunity for EA. Gamers are engaging with EA games, which can be seen by the fact that in the last quarter, gamers played more than 13.6 billion online sessions for a total of nearly 2.4 billion hours across console, mobile, and PC.

Solid games

EA's FIFA World Cup game saw a solid response on the back of the World Cup season. Gamers played 53 million matches, which is equal to 830,000 World Cup tournaments. Further, the upgrade in FIFA Online is driving more gamers to EA’s camp.

EA’s action games are also doing well. The company saw robust sales of EA SPORTS UFC, which exceeded expectations for the rest of the fiscal year. All these indicate that EA games are among the most played in the market and will be key growth drivers for the company in the future.

Innovation and new launches

EA’s strength has been its innovative approach of satisfying gamers’ insatiable appetite for their favorite games. EA has continued to expand its best-selling games by introducing new expansion packs. For example, the third expansion pack for Battlefield 4, namely “Naval Strike” and Titanfall’s first content pack “Expedition” were released, and are now seeing strong engagement.

Battlefield Hardline, showcased at E3, is a live multiplayer game and is expected to deliver more value going forward. However, EA has delayed the launch of Battlefield Hardline, as the company wants to incorporate some new features to the game. However, this can be a strategic move by the company to deliver more solid content to the gamers.

As many other peers are also releasing new games, EA has postponed the game’s launch with a strategy of catching attention by releasing it after the holiday period. Management is optimistic about the company’s performance in the future, and hence, it has stuck to its guidance, driven by its existing gaming portfolio.


EA has an expensive valuation with a trailing P/E of 1,296.54. Its forward P/E is decent at 14.85. However, in the long run, the company’s earnings are expected to grow at an impressive CAGR of 24.33%, which is attractive. Also, considering the traction that EA games are gaining in the market and the announced release of Battlefield Hardline, EA’s prospects look strong. In my opinion, considering the strong prospects of EA, investors should not mind paying a substantial premium for the stock.

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