The video game industry witnessed a boom after COVID-related movement restrictions made people stay indoors. More than two years into the crisis, demand conditions remain positive though there are concerns that gaming consumption is softening as the pandemic situation improves.
Electronic Arts Inc. (NASDAQ: EA) reported strong fourth-quarter results this week, lifting investor sentiment despite reports of the company parting ways with long-term partner FIFA. The stock made sharp gains soon after the earnings announcement and maintained the uptrend since then. Also, the management’s full-year guidance implied that growth would continue.
The stock rally marked a strong recovery from a two-year low, but EA is still down 7% from the levels seen at the beginning of the year and mostly underperformed the market. The good news is that the stock looks poised to shrug off the temporary weakness and gain in double digits this year. The valuation is still low, which is good from an investment perspective.
The recent weakness was the result of concerns over the new regulations in the Chinese gaming market and the tech selloff. Investor sentiment was also hurt by the disappointing launch of Battlefield 2042 last year. However, the management believes the game is still an important part of the portfolio, with the potential to generate revenues for many years. With a slew of blockbuster games under its belt, Electronic Arts enjoys an advantage over rivals and is better positioned to create long-term shareholder value.
All four operating segments registered double-digit growth in the final three months of fiscal 2022, driving up total revenues to $1.83 billion. At $1.75 billion, net bookings were up 18% year-over-year. Consequently, net income more than doubled to $225 million or $0.80 per share. The management also provided positive guidance for the first quarter and fiscal 2023, anticipating the recent growth to continue.
“We have six new EA SPORTS titles this year with more development. Our pipeline for this year and future years features big beloved IP that we cannot wait for players to experience, including Need for Speed, Dead Space, STAR WARS, The Sims, Skate, our BioWare franchises, and Lord of the Rings. Our two new studios in Seattle are working on new projects, our more interesting and unannounced title is in development and we have more underway across our global studio teams,” said Electronic Arts’ CEO Andrew Wilson.
End of FIFA Deal
In what could be a disappointment for some customers, Electronic Arts will be discontinuing the use of the FIFA brand for its popular soccer franchise after negotiations to renew the contract failed. Post the upcoming World Cup, the game will be rebranded under the new name EA Sports FC. However, it is unlikely to affect user experience since the company has multiple licenses to maintain most of its features.
Meanwhile, the gaming industry is witnessing major changes like the rapid growth of esports and consolidation, with the latest being the acquisition of Activision Blizzard by Microsoft Corp. (NASDAQ: MSFT). Earlier this year, Take-Two Interactive Software reached a deal to buy Zynga in a $12.7 billion deal.
Electronic Arts’ stock has gained about 13% since Tuesday’s earnings announcement, marking one of the biggest single-day gains in history. Extending the uptrend, EA traded up 10% on Thursday afternoon.
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