When Trip Hawkins, an ex-Apple employee, founded Electronic Arts over 38 years ago, he had no idea that the company would grow to be the second largest gaming company by Revenue and Market Capitalization of $42.43 B USD. Since then the company has been responsible for the launch and distribution of 15 of the most successful franchises in the video game industry. However, how well is EA performing in the COVID-19 days? What should we expect?
Present and COVID-19 Tailwinds
The video game industry has received tailwinds from the current situation. Gamers have never had more time to be immersed with their consoles or PCs. EA, as many others, has been able to capitalize the opportunity. FIFA and Madden for example posted “off the charts earnings” thanks to their respective Ultimate game mode and microtransactions according to the company COO Blake Jorgensen. Investors have taken notice, and the stock has posted a 34% growth year to date, a healthy standard just below the 38% increase of their biggest competitor Activision Blizzard (ATVI). Andrew Wilson, EA CEO also commented that “Demand for FIFA, Apex Legends and Madden E-Sports is unprecedented” on their Q1 2021 earnings call last July 30th. This proves that not only the current in-game purchases are thriving but their streaming services and e-sports related line of business as well.
The company online platform for game purchases Origin and its membership platform Origin Access grew 75% year over year, saving the company money in distribution and proving the demand for new titles is as strong as in-game purchases. Complemented by a 52% of their net game purchases being digital, and this is before migrating to the new lines of consoles coming from Microsoft and Sony with XBOX Series X and PlayStation 5 respectively. Both new consoles will be launching their lowest priced model as digital only.
Looking ahead
Seeing a strong performance in all their fronts, let’s turn focus to the question: How is EA prepared for a world after COVID-19 has passed and “normal” life resumes? Let's break it down:
1. Current franchises performance: Their line up of sports franchises is set up to be released on 8/14 with the UFC title and we should expect Madden and FIFA to be released a month or so after. There is no reason to believe that these will perform differently considering how eager sports fans are for new entertainment after the pandemic shattered their 2020 seasons. Additionally, on EA Play, the company teased fans with a brief in game view of their new nameless Battlefield (Battlefield 6, without official confirmation) that seems to be breaking the 64 multiplayer barrier that has limited the franchise against heavy weights like Call of Duty: Modern Warfare. If EA knows how to update itself and makes the most of their Frostbite video game engine it could gain back some market share on the shooter category to Activision.
2. New Titles: Since 2013 the California based company has been the exclusive partner of Disney, helping fans enjoy immersive experiences with Star Wars Battlefront both iterations, and, Star Wars Jedi of the Fallen Order more recently. Their latest announcement of Star Wars Squadron has already sent ripples across the thousands of fans of the now Disney franchise. EA has also announced for 2021 an interesting new original game called: “Lost in Random” with a Tim Burton’s like art as main attractive. Perhaps along with Squadrons, the biggest surprise was EA listening to the community and announcing that they will bring back their skaters video games with Skate that has been ascent since 2010.
3. New consoles, new engine?: EA, like all major developers, need to make the most of the powerful new consoles. It’s video game engine, Frostbite, although extremely stable and reliable, has been holding some of its titles back for years and unless DICE is able to move faster and update Frostbite it might be the company’s nightmare with very strong competition coming from Unreal Engine 5. This is perhaps the biggest “IF” on EA’s path forward.
Despite a couple questions regarding their Frostbite Engine and new titles, EA seems like a solid bet looking at the future for a solid reason: they own Battlefield, Need for Speed, The Sims, Medal of Honor, Command & Conquer, Dead Space, Mass Effect, Dragon Age, Army of Two, Titanfall, Apex Legends, and Star Wars, as well as the EA Sports titles FIFA, Madden NFL, NBA Live, NHL, and EA Sports UFC. These are strongholds in today’s world with gamers that in some cases are willing to spend $60 to renew their titles on yearly basis on top in-game micro transactions that have proven to be more than a small fortune for the California company. If we add the facts that the company is seeing growth from their E-Sports portion and its subscription program Origin Access, there is no reason to believe the company future isn't bright.
Conclusion
Electronic Arts, along with its bookshelf of successful titles, should be considered a solid buy in today’s world as well as in the long term, at least for the next 5 years. If they are able to do their homework with Frostbite, listening to the community and bring some new interesting titles they are worth buying/holding for even further than that. Senior leadership is so optimistic about the near future that they raised their Q1 2021 expectations by $400 million, something they have done only once before with the current CEO, COO tandem. Additional reasons to remain bullish is their subscription based model growth and their successful insertion in the E-Sports, an industry that is set to explode in the upcoming decade, and, that has already accelerated with this pandemia as a catalyst.
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