Electronic Arts (NASDAQ:EA) released the second-season update for free-to-play Battle Royale game Apex Legends last week. It failed to impress investors, sending EA stock down by almost 8% on the week.
Some analysts are expecting big things from the video game, which is hailed as a possible competitive threat to Fortnite, the free-to-play global success story with nearly 250 million users.
However, if the reaction by investors is any indication, the changes to Apex Legends from season one, which included adding a new character (Wattson) and changing the game’s map, you might want to stay away from EA stock for a while.
For those of you that are still considering buying it, here are three reasons I would consider EA stock:
It’s Going to $110
If InvestorPlace’s Luke Lango is correct, EA stock could hit $110 by the end of 2019. If it does, you’re looking at an annualized return of 36% over the next six months. That’s not bad in the slightest.
Lango’s rationale for Electronic Arts’ growth spurt centers around the video-game industry’s recovery over the next 12 months.
“The video-game industry has entered a slump. So far in 2019, video-game spending is down 3% year-over-year, including a 17% decline in hardware sales and a 2% increase in software sales,” Luke wrote June 26. “That slump won’t last long. Looking ahead, there are three major catalysts which should supercharge growth across this industry by late 2019 and into 2020.”
The three catalysts include new Xbox and PlayStation consoles in 2020, the launch of cloud-gaming platforms in both 2019 and 2020, and the continuing growth of eSports around the world.
Of the three, I would say the new consoles would have the most direct effect on EA’s sales and share price in the future. Needless to say, the three catalysts should provide growth to both Electronic Arts top- and bottom-line over the next 6-12 months.
You can’t make an omelet without breaking a few eggs.
In 2016, Electronic Arts launched the EA Originals label, which supported smaller independent developers with exciting game ideas. After the success of Fe and Unravel, EA decided to commit to the development of games outside EA.
This year, Electronic Arts announced three new games from the EA Originals label. Lost in Random, the same people behind Fe, RustHeart from Glowmade, and a yet-to-be-titled game from Hazelight Studios.
Electronic Arts continue to see more growth from EA Originals due to the quality of ideas coming from the independent developers out there. If the good ideas keep rolling in, EA could see it launching even more titles in 2020.
In a world where good content is king, EA stock will surely benefit from EA Originals.
Bank of Montreal Likes EA Stock
BMO Capital Markets analyst Gerrick Johnson raised EA’s target price before the launch of the second season of Apex Legends. Despite the lack of investor enthusiasm for the second season, I’m sure the analyst’s viewpoint is unlikely to change in the near term.
“The trailer for Season 2 Battle Charge received overwhelmingly positive response, seeing 3 million views in its first four days since release and received a 95% like-to-dislike ratio,” Johnson wrote in a July 2 note to clients.
Although Johnson maintained his “outperform” rating on EA stock, he raised his target price by 12% from $116 to $130. As I write this, that’s upside potential of 41% over the next 12 months.
In addition to being positive about Apex Legends, Johnson is also high on EA’s soon-to-be-released title Star Wars Jedi: Fallen Order. If it’s anything like the first season of Apex Legends, which had $92 million in in-game sales in the first month, the Star Wars game is sure to turn some heads.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.