Electronic Arts Inc. – ‘Star Wars’ Shoots EA Stock Into Hyperdrive

The hugely successful “Star Wars” franchise was not enough to save the quarter for Walt Disney Co (DIS), but it was more than enough to pump up the results for Electronic Arts Inc. (EA). The game maker also got a nice boost from mobile, all of which pushed EA stock up a sizzling 14.5% to $73.92 in early trading.

'Star Wars' Shoots EA Stock Into Hyperdrive

OK, so let’s take a look at the earnings: Revenues came to $924 million, which handily beat the Street consensus of $888.8 million. The bottom line was also robust, with adjusted earnings at 50 cents a share. The analysts forecast was for 42 cents per share.

And it appears that the momentum should continue, which is perhaps the key driver to today’s move in EA stock.

“Star Wars Battlefront” — released in November — remains a big seller. By the end of Q1, the total units sold were over 14 million. In fact, the franchise was the primary driver for the spike in operating cash flows from $198 million to $396 million.

Some of the key factors for the success is the EA technology platform, called the Frostbite engine. But the company has also been savvy with the premium offerings of content.

Mobile has been another catalyst for EA, with “Star Wars: Galaxy of Heroes” users spending over two hours a day on the game (the average for the fiscal Q4). Then there is “Sims FreePlay,” which has hit over 200 million installs; as well as “Madden NFL Mobile,” logging 30% user growth quarter-over-quarter. For calendar 2014, EA was actually the No. 1 ranked mobile game publisher on the Apple Inc. (AAPL) App Store and Alphabet Inc’s  (GOOG, GOOGL) Google Play store.

The mobile juice is certainly critical for Electronic Arts, as the category is expected to be the main growth driver in the gaming industry. According to Digi-Capital, revenues from mobile gaming are expected to jump from $29 billion in 2015 to $45 billion by 2018.

Bottom Line On EA Stock

EA has a healthy pipeline of new titles. In June, the company plans to launch “Mirror’s Edge Catalyst,” but there will also be new versions of its EA Sports titles. Although, the breakout hit may be “Battlefield 1,” which is expected in October. The trailer alone attracted over 21 million views in the first four days!

All great, right? Definitely. But there should still be some caution as EA stock is getting pricey. If anything, it seems that Wall Street has already factored in much of the good news, as EA stock currently trades at 37 times earnings. By comparison, Activision Blizzard, Inc. (ATVI) sports a multiple of about 30 times earnings.

Still, the gaming industry is fairly volatile. Just look at the fiscal Q3 report for EA, which resulted in a steep drop in the stock price.

In other words, it’s probably better to play the company’s games, not necessarily the stock right now.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/electronic-arts-ea-stock-goes-hyperdrive-star-wars/.

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