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Dividend pay-outs could be a game-changer for Electronic Arts

The battle for supremacy between video game publishers Activision Blizzard and Electronic Arts (EA) has been so eventful that it could easily pass for the theme of one of their best-selling games. Though industry leader Activision enjoyed a clear upper hand for a long time, the gap between the mighty twins of the gaming world has narrowed progressively over the years.

In the later part of 2017, EA almost caught up with Activision and started registering larger quarterly profits, though Activision remained unbeaten with its above-par revenues and the number of popular game titles it owns.

Picture Courtesy: Pexels

What makes the duo stand out is the striking similarity between their business models – both have built their businesses on very strong content base, they have rolled out some of the most popular titles for gaming consoles like Xbox and PlayStation, and they enjoy a strong presence in the smartphone space.

For Electronic Arts, it has been a steady growth ever since its turnaround a few years ago, ending a long-drawn losing streak that was achieved through stringent cost cutting measures and streamlining of the product portfolio.

Now, here’s something that could be a game-changer. It may seem odd, but Electronic Arts stands to benefit from the huge cash it has parked abroad, thanks to the sharp tax cut imposed by the government on foreign earnings.

Electronic Arts stands to benefit from the huge cash it has parked abroad, thanks to the tax cut on foreign earnings

While the fluctuating effective tax rate casts doubts over the actual benefit of the tax reform, investors can look forward to gaining from cash repatriation as the company might use the cash to start a dividend program, thereby becoming the second gaming company after Activision to pay dividend.

Also Read:  Texas Instruments Inc. (TXN) Q3 2020 Earnings Call Transcript

The case for dividend is supported by the fact that gaming business is comparatively capital-light and that Electronic Arts has a very low debt. The strides made by the company in generating revenue from digital distribution put it in an advantageous position, considering the massive digital shift the gaming business is currently witnessing.

Shares of Electronic Arts closed Wednesday’s trading at $127.17, up 2.10%. Activision stock gained 0.2% during the day and closed at $74.07.

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