What Makes Electronic Arts Inc. (EA) a Buy?

Page 1 of 2

Electronic Arts Inc. (NASDAQ:EA) is a gaming company based in the U.S. that has exhibited solid growth lately. The company’s stock grew 17% after its fourth quarter results were announced, representing its biggest jump since December 2000. Its stock price has appreciated 48% this year relative to a 14% gain witnessed on the Standard & Poor’s 500 Index. The company posted such exceptional results primarily due to control in its cost structure and a shift in its strategy from retail to the digital platform.

Electronic Arts Inc. (NASDAQ:EA)

The entire gaming industry is experiencing a massive shift towards the digital platform at the moment. Hence, there is a noticeable increase in overall revenues generated through this platform. The decline in sales of consoles remains a serious concern for the gaming industry, however. It is imperative for potential investors to comprehend these shifts in the gaming industry in order to make the right investment choice.

Evolving trends in the gaming industry

The most noteworthy change in the landscape of the gaming industry is its shift from retail to the digital platform. Electronic Arts Inc. (NASDAQ:EA)’s digital revenue, from mobile games and online offerings, increased 45% year-over-year to surpass the $600 million mark. Going forward, sales of PC games are expected to increase at a rapid pace and bolster the digital platform. Similarly, the company’s foray into social networking through games such as “The Sims Social” is also expected to prop up sales in the future.

Digitization in the gaming industry has resulted in traditional platforms such as consoles competing with smart phones, tablets, social networking sites and online browser games. This has led Electronic Arts Inc. (NASDAQ:EA) into shifting its focus completely onto the new emerging gaming platforms.

According to valuation offered by Trefis, the company’s mobile division contributes 9% to its overall stock value. It is worth mentioning that mobile revenues grew from $164 million during 2009 to $308 million in 2012, which is indicative of a major trend shift for the gaming industry.

The company has successfully integrated its Origin game service with the mobile platform, enabling it into offering mobile versions of the company’s popular games. Furthermore, Electronic Arts Inc. (NASDAQ:EA)’s “The Sims Social” has witnessed a remarkable response on the social networking platforms and has surpassed competitors such as “Farmville” in terms of average daily users.

Key value drivers

Electronic Arts Inc. (NASDAQ:EA) is in a transitional phase, shifting gradually towards mobile and online gaming. This will certainly impact the company financials, as revenue generated through traditional sources such as consoles are the highest contributor to its net income. Nevertheless, the rapid growth experienced through the mobile platform will certainly offset for any decline. Moving ahead, EA must shift its focus to games with lower research and development costs and fewer administrative expenses such as the “FIFA” and “Need for Speed” franchises.

Furthermore, it is essential for Electronic Arts Inc. (NASDAQ:EA) to recognize that massively-multiplayer online games (MMOGs) have become extremely popular. In addition to offering high margins, these games also enable lower incremental spending for services offered to paid subscribers.

Competitive landscape

Activision Blizzard, Inc. (NASDAQ:ATVI) is the one of the largest players in the gaming industry. The company is strategically investing in new mobile and social gaming projects with an aim to maximize its revenues through non-traditional sources. The aggressive growth realized by Activision Blizzard, Inc. (NASDAQ:ATVI) is through the success of popular games such as “Call of Duty” and “World of Warcraft.”

The company has a diverse range of revenue streams. It generates the highest percentage of its revenue through sales of games for consoles at around 45%, which is followed by PC, mobile and social gaming at around 25%. The remaining revenues are split between online subscriptions, handheld games and distribution. Despite the industry-wide drop in the sales of console games, Activision Blizzard, Inc. (NASDAQ:ATVI)’s stock has appreciated approximately 40% since 2013. The company is well positioned to absorb any headwinds caused by the decline of consoles as it is posting robust numbers through the new emerging platforms.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!