Categories Analysis, Leisure & Entertainment

Electronic Arts offers a unique buying opportunity as the COVID-led boom extends

The company recently expanded its mobile portfolio through the acquisition of mobile game developer Glu Mobile

The gaming industry witnessed a spike in demand after the coronavirus-related movement restrictions forced people to stay indoors. As the consumption of online content grew steadily, spending on video games rose to record highs. Encouraged by the increase in player engagement, Electronic Arts (NASDAQ: EA) is currently busy adding new franchises and expanding its mobile portfolio.

Is EA a Buy?

Earnings of the Redwood City, California-based game publisher missed experts’ projection for two consecutive quarters, but its bullish future guidance indicates the COVID-driven demand boom would continue. On Wednesday, the stock traded lower and broadly at the levels seen at the beginning of the year. The temporary decline offers a buying opportunity that can bring long-term benefits. Market watchers overwhelmingly recommend buying EA, citing its strong growth prospects for the rest of the year.

Read management/analysts’ comments on Electronic Arts’ Q4 report

In the March quarter, an increase in the core Live Services revenue was more than offset by contraction in the other business segments. As a result, total revenue dropped 3% annually to $1.35 billion. Adjusted revenue was $1.49 billion. At $0.26 per share, earnings were sharply lower compared to last year and below the estimates.

Mobile Push

Though the management predicts a decrease in full-year earnings, it is optimistic about bookings and revenue performance for the remainder of the year, thanks to the stable demand for top franchises like FIFA-21 and Apex Legends. It launched as many as 13 new games in fiscal 2021 and added 42 million new players to the network.

Electronic Arts Q4 2021 earnings infographic

In an effort to maintain the current momentum and expand the user base further, the company recently enhanced its mobile portfolio through the acquisition of game developer Glu Mobile. It is estimated that the bottom line would be negatively impacted by acquisition-related costs in the near term. Also, there are concerns that the vaccination drive and market reopening might drive players away from gaming platforms, reversing a part of the recent traffic growth.

Besides ramping up the mobile platform, the other focus areas are expansion of the Sports segment and upgrading leading titles like Apex Legends and Battlefield, going forward. The strategy complements the steady growth in the consumption of sports games and the shift from linear to interactive.

With the recent re-organization and hiring of new leadership and talent into our EA mobile teams, we are in a position to maximize our leading mobile live services, including Star Wars: Galaxy of Heroes, The Sims, and Real Racing by growing player acquisition deepening engagement and player investment and driving new opportunities in non-western markets. We will grow in sports mobile with innovation in our leading franchises including FIFA, Madden, and UFC, as well as the addition of MLB TapSports Baseball to our mobile sports portfolio.

Andrew Wilson, chief executive officer of Electronic Arts

Stock Performance

The company’s shares entered 2021 on a high note and rose to an all-time high in early February. They closed the last session higher, but traded lower early Wednesday and pared a part of the recent gains. Currently hovering slightly above $140, the stock gained about 19% in the trailing twelve months but broadly underperformed the market.


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