Video game mogul Electronic Arts Inc. (NASDAQ:EA) reported its fourth-quarter fiscal 2017 results today after the bell and the figures suggested that EA is poised to continue delivering value to investors in the coming year. Over the past five years, the gaming company has seen its share price rise more than 500%, and while those kinds of returns are likely in the rearview mirror for EA stock, the company offers a solid investment that will likely see double digit growth each year for the next few years.
Electronic Arts beat analysts’ expectations with its fourth-quarter results, posting EPS of $1.81 on revenue of $1.53 billion, compared to estimates of $1.63 earnings per share on revenue of $1.49 billion.
EA Stock Is the Comeback Kid
Electronic Arts has been able to make a pretty impressive turnaround over the past few years, and it appears that management’s efforts are paying off. The firm has established itself as a major player in the gaming industry, and its phenomenal digital revenue gains are proof of its staying power.
More and more gamers are opting to buy their games online through their consoles rather than buying physical disks. This has been a problem for companies like GameStop Corp. (NYSE:GME), but a boon for game makers like EA.
That’s why EA’s digital business results are so important — they represent a huge growth opportunity. However, with that said, investors need to keep in mind that EA’s digital revenue growth is bound to level off at some point as the business matures. Five years ago when management first began working to grow online revenue, a near 50% growth rate was to be expected. Now that online revenue opportunities have been explored, a 20% growth rate is very respectable.
It’s important to note that EA hasn’t put out a brand-new hit game franchise in a long time. Instead, the firm relies on popular franchises like FIFA and Mass Effect. Its latest Mass Effect installment — Mass Effect: Andromeda — appears to have played well among consumers despite worries about negative reviews.
The firm has also been working to drive spending on older games, which will help EA earn in upcoming quarters when no new games are due to be released.
New Partnerships for EA Stock
Another big factor for EA stock has been strategic partnerships, which could create new growth opportunities for the firm in the future. Electronic Arts announced plans to partner its Real Racing 3 with the Fia Formula E Championship last October. The partnership means that the game can include Hong Kong’s Formula E circuit as well as a Formula E car option.
Many have praised the deal, saying that it would help EA make its way further into the Hong Kong gaming market.
Bottom line, Electronic Arts has delivered impressive gains to investors who believed in the company’s growth story and held on to the stock while management turned things around. The stock is unlikely to continue providing investors with triple-digit returns, but it’s also not a bad pick. The firm’s earnings results show that EA is still on an upward trajectory and that investors can expect sizable returns on their investments.
Investors who want exposure to the quickly growing gaming market should buy EA stock, as it represents a well-positioned company with a lot of potential for growth ahead.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
