Electronic Arts (NASDAQ:EA) biggest movement so far in 2020 came after the company released its Q3 earnings at the end of January. After missing expectations on both revenue and earnings, and delivering soft 2020 guidance, EA stock dropped nearly 6% in two days of trading.
So, not great news if you’re an EA investor.
One of the areas that hit EA revenue in Q3 was mobile. Revenue in this division slipped by 11% year-over-year.
During its Q3 earnings call, CEO Andrew Wilson said: “[M]obile continues to be a focus for us and we do believe there’s a growth opportunity ahead.”
That includes two new mobile game titles scheduled to launch in 2020, a focus on monetization and new content for existing mobile games, and continued exploration of “opportunities for partnership and acquisition.”
After several quarters of declining mobile revenue, a return to growth in this division would be a real win for the company in 2020.
New Game Consoles
One of the big opportunities for all game publishers is the launch of new game consoles this fall. Microsoft (NASDAQ:MSFT) will be releasing the Xbox Series X, while Sony (NYSE:SNE) will counter with the Playstation 5.
Games for new consoles come with high development costs, but the opportunity is there for a big holiday sales season. At launch, gamers are always desperate for video games that will showcase the capabilities of their new hardware. Parents are looking for an add-on for a console that becomes a Christmas gift. As a result, next-gen titles tend to get snapped up.
EA released five games for the Xbox One and Playstation 4 when they launched in 2013. The company has been short of specifics on its next-gen console plans but did confirm it will launch 14 game titles between April 2020 and March 2021, and it’s a lock that at least some of those will be landing on the Xbox Series X and PS5.
The Risk of Unexpected Setbacks
The company has been embroiled in ongoing controversy over “loot boxes,” the in-game purchases that allowed players the potential to buy their way to better scores.
There was significant outcry among gamers over the unfair advantage “pay-to-win” loot boxes offered those willing to spend money on EA’s popular Star Wars: Battlefront II game. The backlash from the gaming community was enough for EA to drop loot boxes for that title in 2018.
The practice has come under government scrutiny. Several European countries have outlawed loot boxes, classifying them as a form of gambling. The entire industry is currently under FTC investigation over loot boxes.
Given that in 2018, it was estimated that loot box revenue for EA’s sports titles alone netted the company more than $1 billion, the potential impact on EA’s bottom line is significant.
There is also real risk of a tentpole game flopping. Video games often have budgets larger than movies — Activision Blizzard’s (NASDAQ:ATVI) Destiny is the current record-holder with an estimated development and marketing spend of $500 million. With stakes so high, a miss can be catastrophic. When Electronic Arts’ Battlefield V stumbled during its holiday quarter 2018 launch, the news caused EA stock to drop as much as 19%.
Even a seemingly minor detail can have a big impact. Last summer, the news that Electronic Arts had lost the rights to use Italian soccer club Juventus and its star player Cristiano Ronaldo in its FIFA video game franchise hit EA stock. It dropped 3% after the announcement.
Bottom Line on EA Stock
How well Electronic Arts will perform in 2020 largely comes down to weighing opportunities against risks. Investment analysts like EA’s odds. Those surveyed by The Wall Street Journal have EA stock rated as “overweight,” with a $119.63 average 12-month price target. That represents an 8.7% upside and a degree of confidence that 2020 is going to be a good year for Electronic Arts.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.