Electronic Arts (NASDAQ:EA) reported its third-quarter numbers last week, talking up its better-than-expected revenues while revealing two delays to round out the rest of its fiscal year. Some investors have been down on EA stock as a result, but the bottom line is that, in the long term, these delays will not hurt the bottom line.
EA’s stock price is the highest it’s been since before the financial crisis, and should continue to power higher in 2015.
One of the big challenges for a software company like EA is how to succeed in a mobile age, as sales of physical video games remain challenged. But according to EA’s report, digital sales made up roughly half of Electronic Arts’ revenue from the last quarter.
Furthermore, The Sims 4 has only been available since September, yet global sales are over 1.5 million and rising, showing potential for big future sales.
As for the delays, it’s true that not seeing the anticipated expansion pack for The Sims until “sometime” in fiscal 2016 will constrict EA’s most valuable revenue source. But let’s look at one of EA’s most anticipated titles, Battlefield: Hardline.
EA delayed Battlefield: Hardline last July, knocking it out of the holiday sales race, yet the price of EA continued trending upward despite this. In fact, as Keith Noon of Motley Fool has asserted before, delays can actually be a good thing for a stock like Electronic Arts.
After all, the reason for the delay, according to Battlefield’s creative director, was to focus on innovation in the face of stagnating creativity in the first-person shooter genre. In the case of Battlefield: Hardline, a creative delay may end up favoring EA, as impressive critical reception could bolster consumer interest to surpass the dwindling sales of the Call of Duty franchise from competitor Activision Blizzard, Inc. (NASDAQ:ATVI).
Anticipation for the latest Battlefield will continue to grow thanks to an open beta running from today through Feb. 8. Battlefield: Hardline will launch on March 17 on PC, the PlayStation 4 and PlayStation 3 from Sony Corp. (ADR) (NYSE:SNE) and the Xbox One and Xbox 360 from Microsoft Corporation (NASDAQ:MSFT). That’s just shy of the end of EA’s fourth quarter.
If first-week numbers are high, EA might be able to get enough juice to beat guidance.
Bottom Line
EA does not pay its shareholders a dividend, but it does boast nearly $3 billion in cash — cash that CFO Blake Jorgensen wants to return to shareholders through share repurchases via a two-year, $750 million share buyback program.
And looking ahead, EA should get more lift later this year from holiday sales, as Star Wars: Battlefront is expected to be released near the debut of the hotly anticipated Star Wars: The Force Awakens.
Forget about EA’s relatively weak fourth-quarter forecast. Investors may encounter some chop on the journey, but the reward far outweighs the risk.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
