Trading Action Indicates Electronic Arts Stock Is Less in the Game

Competition and a changing industry has sidelined EA stock

Electronic Arts (NASDAQ:EA) stock has traded in a range for most of the year. The venerable maker of esports games has struggled amid competition on many different fronts. Many of the more popular games today do not rely on a console.

Source: 360b /

Moreover, EA seems to still rely on new versions of the older game franchises that have driven the company for many years. Although new game releases could help Electronic Arts, expect the stock to gain little traction without a new blockbuster game.

Electronic Arts Stock Has Failed to Gain Traction

The year 2019 has brought both good news and bad news for Electronic Arts stock. The EA stock price has risen more than 25% since the beginning of the year. Unfortunately, that increase came in January. Since February EA stock has made no net gains.

Electronic Arts is in good shape financially, at least for now. As Mark Hake points out, the equity produces a free cash flow yield of 5.3%. Moreover, from a forward price-to-earnings (PE) perspective, EA remains cheaper than either Activision Blizzard (NASDAQ:ATVI) or Take-Two Interactive (NASDAQ:TTWO).

However, I look at EA stock and go back to the Oct. 29 earnings report. Although the company beat estimates on both earnings and revenue, traders offered a tepid response. Even news that the company would move back to the Steam platform failed to drive shares. Put simply, this company continues to fail at generating excitement.

In their defense, EA seems to understand this issue. The company announced it would delay the release of its latest “Battlefield” update until fiscal 2022. The company will not release “NBA Live 20” until the next fiscal year. This matters less as EA seems to excel in sports-related games.

However, taking more time for a release puts more pressure on a company to get it right. If EA does not make the wait worthwhile, it could affect EA stock longer-term. As it stands now, most analysts appear to feel that ATVI and TTWO stock are better ways to play the release of the next generation of consoles.

Competition, Console Dependence Could Hurt EA

This also appears in their struggle to find a game that could compete with “Fortnite,” the successful franchise created by Epic Games. EA stock rose early in the year as it released “Apex Legends,” which many hoped would compete with “Fortnite.”

Though “Apex Legends” has not out-competed “Fortnite,” it looks to have come closer than any other game in the so-called “battle royale” genre. Still, just about every stock rose early in the year as the market recovered from the fall 2018 sell-off in tech stocks. Hence, the rising stock price at that time likely had little to do with  “Apex Legends.”

Moreover, as I mentioned in previous articles, the gaming industry is likely in the middle of a bifurcation process away from consoles. The higher-end gamers prefer PC-based games for their faster speeds. On the other end, more casual gamers have gravitated to smartphone or tablet-based games.

The latter trend has favored emerging companies such as Glu Mobile (NASDAQ:GLUU) and, at times, Zynga (NASDAQ:ZNGA). Although the established players have worked to adapt games to new platforms, their strength still tends to rest with the console-based platform.

Electronic Arts games retain a following. I do not expect devastation for EA stock. However, until an EA game can generate excitement, expect little change in the EA stock price.

Concluding Thoughts on EA Stock

As long as Electronic Arts continues to tread water, expect EA stock to do the same. EA continues to hold its own. Its sports games continue to garner respectable sales. Also, while  “Apex Legends” continues to lag “Fortnite,” it remains that game’s most significant competitor.

However, EA stock appears to still rely mainly on its traditional franchises. This looks increasingly dangerous in a gaming world where the console has become less critical to gamers.

I do not think its game over for EA stock, but if EA games do not attract a lot of excitement, I see little reason for investors to play Electronic Arts stock.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.

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