Electronic Arts (EA, Financial) continues to gain market share from new titles, deep player engagement in its large service and ongoing digital growth. Electronic Arts has recently launched series of new games and services such as NFL 15 and Sims 4 across various platforms such as console, PC and mobile. These games continue to carry unbelievable experiences for gamers on a daily basis. Electronic Arts had approximately 1.9 billion of gameplay for gaming consoles and PC during the last reported quarter. Also, it observed about 155 million monthly active users for EA mobile games.
Good progress
In addition, the company has released updates for both of these games coupled with new features and game modes. EA expects these new features and game modes to attract new and existing users to its fold. Also, the company should benefit this quarter from its most recent launch of FIFA 15 that had only one week into the second-quarter. Electronic Arts has seen incredible response for its FIFA 15 that exceeded 3.4 million unique players in just one day. Also, the company is now seeing approximately 50% greater player engagements for this online game FIFA 15 over FIFA 14. Further, it expects FIFA 15 to perform well during the upcoming soccer season and beyond, which should drive its growth and deliver handsome returns to shareholders in due times.
Electronic Arts has also launched mobile version of NFL 15 and FIFA 15 for both iOS and Android that should supplement growth for its mobile segment going forward. Its mobile segment continues to benefit from the golf games, EA SPORTS. In fact, the company is seeing tremendous momentum in its mobile platform. EA SPORTS itself had about 40 million monthly active users in the last reported quarter, up about 250% year-on-year basis. Further the company continues to provide new updates and content for EA SPORTS that should excite the existing player and attract new players to its games. The company sees explosive growth attached with these Madden NFL 15, NHL 15, and FIFA 15 in the long run.
Moreover, the company is observing great engagement of players across Asia. Its FIFA online 3 is gaining a lot of traction in highly competitive environment of free-to-play markets. It grew approximately 89% year-on-year basis in the last reported quarter. In addition, EA is realizing great opportunity for its titles in China and Korea. It now involved in exploring new ways with its biggest IP that should probably attract new players to its fold going forward.
It should also benefit from this holiday season with its most recent launch of NBA 15. This game offers stunning visuals and enhanced game play experience to its players. Also, the company looks pretty strong with its potential pipelines of new titles. Electronic Arts will soon be announcing the release of its most anticipated game ‘Dragon Age: Inquisition’.
However, the company faces tough competition from its rivals such as Activision Blizzard (ATVI) and Take-Two Interactive (TTWO). Activision Blizzard does carry an advantage this holiday season with its release of World of Warcraft: Warlords of Draenor. ATVI is also expected to soon release two additional free-to-play online games that should certainly compete with EA’s FIFA online 3 free to play online games. Moreover, ATVI has designed these games predominantly for new platform, new regions with new genre and new audience.
Digital transformation to add strength to its portfolio
Electronic Arts is aggressively focusing on the digital transformation. Its digital transformation strategy concentrates on providing innovative games and IP, enhancing platforms, content model and modality of play. It should provide incremental growth opportunity for the company in future. The company additionally remains on track to invest in technology and services that should support its growth in the long-run.
Electronic Arts has recently launched its new digital service for Xbox One players, called EA Access. EA Access is expected to facilitate unrestricted play for numerous EA titles. The company should also benefit from the valuable benefits it offers to its users across the world for in terms of monthly or annual fee. EA is seeing great momentum with its EA Access membership program. It has grown beyond its expectation since the introduction and the company expects it to grow at a healthy rate going forward.
Conclusion
Electronic Arts is making good progress with its new games and releasing potential updates and contents that should generate greater player engagement going forward. It is also releasing the mobile version of NFL 15 and FIFA 15 on both iOS and Android platform that should drive its growth in the long-run. Also, it has huge potential with its strong product pipeline that should enhance its performance and create value for shareholders over the times. The analysts have estimated CAGR of 15.00% for the next five years that indicate sound growth prospects for the company in the future. It also offers short term return with CAGR of 23.70% this year and 11.50% next year respectively.
The company is currently trading at the trailing P/E of 33.63 and forward P/E of 17.80 that signifies fair valuation for the stock that has plenty of rooms to grow in the market over the periods. Also, its PEG ratio of 1.32 continues to support its growth for the coming five years. EA has profit and operating profit margins of 9.60% and 11.00% respectively for the trailing twelve months. EA’s balance sheet carries total cash of $2.39 billion, which is quite sufficient to cover its total debt of $591.0 million. It has operating cash flow of $1.15 billion, while its leverage cash flow stands at $860.75 million.
