In the burgeoning era of virtual reality, augmented reality and the fastest computer development we’ve ever seen, video game stocks are finally getting some due attention. Tech heads had all eyes on Electronic Arts Inc. (EA) yesterday afternoon when the company posted its fiscal first-quarter results, which came in above analysts’ expectations.
After adjustments for deferred revenue, EA reported an earnings gain of $0.07 per share on sales of $682 million, easily beating estimates of a loss of $0.02 per share on $651 million in sales.
EA stock rose 2% on the news before pulling back 2% again, and now it is more or less trading at flat levels. While EA stock is up 22% in the last three months (and up 27% in the last six months), this holding pattern is something EA investors have become all too familiar with in recent weeks.
Buyers piled into the stock in mid-May and then again in mid-July, pushing the share price to an all-time high of $79.99. Since then, the stock has hovered between support around $75 and resistance at $80 — but refuses to cross the line in either direction.
Part of the reason for the drag is that EA lacks any disruptive short-term catalysts to push it over the edge. The company didn’t release any standout games between April and June, and much of the revenue generated this quarter was spillover from games released months ago, such as “Star Wars: Battlefront,” or sparse sales of downloadable content for existing games such as “The Sims 4.”
Meanwhile, earnings over at Activision Blizzard, Inc. (ATVI), creators of the iconic massive-multiplayer online game “World of Warcraft,” have soared 223% year over year with sales up 92%, thanks to its new wildly-popular hero shooter “Overwatch.”
Bottom Line on EA Stock
EA is doing a fine job keeping up with gaming trends, as digital sales accounted for a record 55% of revenue this past quarter. Further, the user base for its smartphone games, titles such as “Madden NFL Mobile,” continues to climb, which bodes well for the company’s future as mobile games across the sector are expected to reach $48 billion in annual revenue by 2020.
So, while EA looks like dead money for the time being, it’s still a stock worth watching. If sales of games scheduled for release in the fall, titles such as “Mirror’s Edge: Catalyst,” can shake things up, we could see EA stock hitting new highs near the end of 2016.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
