2017 has been a great year for gaming stocks, and Electronic Arts (EA, Financial) is one such stock that has benefited from strong upward momentum. The stock is up almost 45% year to date.
Electronic Arts reported second-quarter results on Oct. 31. For the quarter, the game publisher posted earnings per share of 62 cents, topping the analysts' estimate by 8 cents. On the other hand, its revenue came in at $959 million, missing the consensus by $221 million. Most significantly, that figure represents a drop of almost 13% year over year.
The game publisher’s operating expenses were $611 million, $27 million less than its own guidance. With the decreasing operating expenses, its operating cash flow also dropped to $52 million, down $70 million compared with a year ago.
Although the game publisher raised its guidance for fiscal year 2018, it also gave a next-quarter forecast slightly below Wall Street estimates. Due to this, shares of Electronic Arts were down nearly 5% after the market close on the day it reported second-quarter results.
Electronic Arts recently publicized it is shutting down its Visceral Studio that had been working on an untitled “Star Wars” game for more than three years. The company management said that the game will undergo a significant change in direction and a new team of developers will be assigned to it.
Several development studios including Bioware, EA Maxis and DICE will now work on the new “Star Wars” project. The original “Star Wars” game was projected to release next year, but that window no longer applies to the new project.
Nowadays long-term player engagement is one of the most significant goals for game publishers. Keeping that in mind, the game publisher claimed that the new untitled “Star Wars” game will deliver an experience that gamers will want to come back to and relish for a long time.
Apart from this, Electronic Arts is on its way releasing the next installment of action-adventure star Wars Battlefront titled “Star Wars Battlefront II” on Nov. 17. Star Wars Battlefront, which the company released in 2015, performed much better than the expectations. The company is expecting the same kind of performance from sequel “Star Wars Battlefront II,” which will help it grow well in 2018.
Summing up
Electronic Arts has delivered numerous big and successful titles in the past. Things are likely different now as the video game industry is rapidly evolving. Video game publishers are mainly focusing on driving players engagement.
The game publisher had been working on the untitled “Star Wars” game for a long time and opting to shut down Visceral would not have been that easy for the company. The gamers will now expect even more from the new “Star Wars” game, and Electronic Arts will not likely disappoint them.
On the other hand, the company carries on investing largely in e-sports as the e-sports market is projected to grow at a rapid pace. Also, the company is well positioned to gain benefits from the lucrative mobile game market as it continues launching new innovative mobile games.
The stock trades at price-earnings (P/E) of almost 30, considerably less compared to its rivals. Also, it has a robust business model. In all, shareholders should continue their long-term journey with Electronic Arts as its future still looks solid.
Disclosure: No positions in the stocks mentioned in this article.
