It’s hard to ignore the fact that the overall economy looks terrible right now. Recently, government data indicated that GDP in the first quarter contracted 4.8%. Even worse, more pain can be on the way. But the important lesson to remember about a crisis is that the bad news doesn’t impact every business the same. For companies like Electronic Arts (NASDAQ:EA), this is almost a perfect contrarian opportunity. Therefore, you should really consider adding EA stock to your quarantined portfolio.
Primarily, this is all about a great investment where the underlining environment fortuitously made it even greater. Over the last few decades, video games exploded from a niche hobby into a multi-billion dollar industry. For instance, in 2010, consumer spending on video game content in the U.S. numbered $17.5 billion. By 2018, this figure had skyrocketed to $35.8 billion.
In fact, as the U.S. steadily worked its way out of the Great Recession, video game sales increased in magnitude. Year-over-year growth in 2017 and 2018 averaged nearly 21%, which is an obvious catalyst for EA stock, along with rivals such as Activision Blizzard (NASDAQ:ATVI) and Take-Two Interactive Software (NASDAQ:TTWO).
Historically, what this tells us is that pent-up demand for the gaming sector is a very real phenomenon. Therefore, whatever discounts you can advantage during this unprecedented time is an opportunity you shouldn’t ignore. Additionally, read on for three other tailwinds driving EA stock.
Ridiculous Gaming Stats Bolster EA Stock
For gaming-based investments, the bullish thesis is simple but incredibly effective. With millions of Americans ordered to shelter in place, video games offered a viable entertainment platform. Not only that, it aligned with government health recommendations to flatten the infection curve.
Essentially, this translated to a hostage audience for EA stock. And while most analysts expected the engagement numbers to improve significantly, I think many were caught off guard at how incredible the statistics were.
Around mid-March, Verizon Communications (NYSE:VZ) reported that video game usage during peak hours jumped 75% in the first week since the initial batch of states issued stay-at-home orders. Better yet, consumers weren’t just playing video games but were purchasing them as well. Several popular gaming franchises enjoyed a dramatic lift in revenues.
While it’s true that some of this tailwind will fade as more states open their economies, the benefits won’t entirely disappear. For instance, major states like California have disclosed vague strategies about reopening but without any set target dates. Therefore, we can reasonably expect robust stay-at-home demand to continue supporting EA stock.
Moreover, the generous $600 addendum tacked onto state unemployment benefits may inspire several workers to milk the system, for lack of a better phrase. After all, why go to work when you can collect a much healthier benefits package than you would ordinarily receive?
Granted, this is an incredibly cynical way to look at things. However, it’s nevertheless a positive for EA stock.
No Sports Means More eSports
What I’ve discussed above involve factors that positively affect every video game company. But for Electronic Arts, specifically its EA Sports brand, the current environment represents a potentially massive moneymaker.
As you know, professional sports leagues made the decision to shut down because of the novel coronavirus. While stuck in quarantine, many Americans longed for the day that we can either watch a game in person or at the very least, root for our favorite teams on TV.
Unfortunately, White House health adviser Dr. Anthony Fauci poured cold water on that idea.
According to Dr. Fauci, if the U.S. doesn’t implement robust testing capacities to help insure that Covid-19 won’t spread again, some sports may have to call this year’s season off. Obviously, this would be devastating news for millions of us who are already dealing with an unprecedented crisis. However, for EA stock, it’s a goldmine.
For instance, auto racing leagues were among the first sports to shut down operations. However, they found an outlet through eSports. As a result, impacted leagues gave fans a digital version of their sport. Additionally, the crisis opened the opportunity for racing fans to compete against real race car drivers.
For EA Sports, which owns the lucrative NFL license for video games, the division can organically market its eSports tournaments. These competitions have always been popular. But with the real deal potentially out of commission, their digital platforms will attract more fans.
Multiply that across the various licenses that EA Sports owns and 2020 may turn out to be a key pivot for longer-term growth and integration.
Video Games Foster Community
One of the most devastating but relatively silent crises within the broader Covid-19 pandemic is mental health. Separated from their jobs, people lose their sense of worth. Separated from their loved ones, they lose something worse: their identity and their ties to a greater whole.
What’s especially problematic is that the government has basically treated everyone the same. Irrespective of your physical health and risk profile, you must stay at home. This has deprived everyone across all demographics of vital social communications.
Interestingly, video games offer an effective alternative. Through amateur eSports leagues, friends and colleagues can gather together digitally and socialize under the context of competition. Sure, it’s not the real thing, but it provides some semblance of normalcy.
In a world that has become unrecognizable for many, this small token can go a long way.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
