At this week’s Electronics Entertainment Expo (E3) show, Electronic Arts Inc. (NASDAQ:EA) ginned up lots of excitement with new announcements for upcoming titles. One of the most important titles for EA stock was for Battlefield 5, a multiplayer World II shoot-‘em-up game. Keep in mind that it will have a “battle royale” mode that allows for massive battles that go to the bitter end.
Yes, this appears to be in reaction to the hugely popular Fortnite game. For example, Activision Blizzard, Inc. (NASDAQ:ATVI) recently announced it will also introduce a battle royale mode in Call of Duty: Black Ops 4.
Next at the show, EA provided some details on Bioware’s Anthem, which is another multiplayer game where you do battle with mechanized exosuits. They can meld into unique weapons and great powers (the games is expected to hit the markets in February 2019).
Cool stuff, right? Definitely.
What’s more, EA stock has been responding with gains of about 35% or so for the year so far.
But what now for EA stock? What can we expect? Well, I think there is still more potential for upside. So let’s see why:
Reason #1: eSports
It’s true that EA has been late to the eSports industry, behind other players like ATVI, Take-Two Interactive Software, Inc (NASDAQ:TTWO) and Tencent Holdings Ltd (OTCMKTS:TCTZF).
But holders in EA stock should not be too concerned. Consider that the company’s unique set of assets are likely to result in traction in eSports, as EA has been building new features that are focused on professional gamers. According to InvestorPlace.com’s James Brumley:
“Case in point: EA’s ‘Ultimate’ team mode lets players custom assemble a football or soccer team roster. It’s still not the real thing, but it’s a whole lot more like the real thing. Another nicety that Electronic Arts has cultivated is the idea that any player is able to take a shot at winning a tournaments, rather than limiting access to pre-determined (albeit proven) gamers.”
In light of all this, EA has been getting sponsorship for major brands like Major League Soccer, NFL, Walt Disney Co’s (NYSE:DIS) ESPN, The Coca-Cola Co (NYSE:KO) and FIFA, which are setting up tournaments.
Granted, things are still in the early days and there will be lots of trial-and-error. But the good news for EA stock is that the eSports strategy is showing clear signs of momentum.
Reason #2: Subscriptions
The subscription model has been a driver for breakout companies like salesforce.com, inc. (NYSE:CRM) and Netflix, Inc. (NASDAQ:NFLX), but this approach has also revived old-line companies. Just look at the success of Adobe Systems Incorporated (NASDAQ:ADBE) and Microsoft Corporation (NASDAQ:MSFT).
In light of all this, it should be no surprise that EA is also adopting subscriptions. The plan is to launch – sometime this summer – a service called Origin Access Premier. It will provide access to PC games at $14.99 per month or $99.99 per year. With this, subscribers will get access to new releases before the general public does. There will also be availability of older titles (over 100).
The subscriptions should mean stable, recurring revenues. They will also provide for monetization of the backlist.
All in all, it’s a smart strategy and should provide another catalyst for EA stock.
Reason #3: The Sports Franchise
The gaming industry is brutal, especially for smaller developers. The market is crowded with new games, and the players can be fickle.
This is why franchises are so important for success. And this is where EA shines, particularly with its sports titles.
The EA has built a moat across the main categories, which are protected by licenses and tremendous brands: FIFA, Madden, NBA Live, NHL, PGA and UFC. Simply put, millions of gamers have invested time and resources in these games.
According to InvestorPlace.com’s Josh Enomoto:
“Sports-related video games are popular because they tap into a fantasy. The fantasy loses its magical touch, though, if only generic teams, players, and brands are incorporated. To bridge this gap between reality and virtual reality, Electronic Arts aggressively secures sports licensing deals.”
It’s really a simple strategy – but it is also very powerful. For the most part, it’s hard to see how any upstart can take on EA’s sports titles and this means that the business is likely to remain a nice cash generator for years to come.
Tom Taulli is the author of High-Profit IPO Strategies, All 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.
