Company Name: Electronic Arts Inc.
Entry Price: $129
Target Price: $145
Projected Yield: 12.40%
Time Line: 3 to 6 months
About Electronic Arts
EA is one of the world's leaders in interactive entertainment software. The company creates and markets video games, add-on content, and online services for web connected gaming systems, personal computers, mobile phones, and tablets.
What's the Idea?
Earn on the stock that could rise with the increasing popularity of sports video games and the demand for online gaming services.
Buy Electronic Arts Shares >>
Why Trade Electronic Arts?
Reason 1: Increased Popularity of Sports Video Games
Electronic Arts reports that, after the first week since the release of Madden NFL 21, sales have increased by almost 20% over last year's version of the game. Player engagement has also increased: since the launch on 28 August, players have played nearly 50% more games compared to last year.
FIFA 20 is also quite popular, with 7M new players engaged during the last quarter. This is a 100% increase compared to the same period last year.
In the second six months of 2020, the company plans to release new game versions: FIFA 21, NHL 21 and Star Wars Squadrons, which may attract even more new players and become an additional driver of earnings growth.
Reason 2: Expanding Demand for Online Services in Games
The lockdown measures helped to increase the EA's online services popularity with players. Over the last quarter, live services earnings rose to $ 1.10B, up 61% compared to last year. This includes earnings from in-app purchases, subscriptions, and ads. This result was backed by an influx of 10M new and retained players.
With no or very few sports competitions during the lockdown, the fans clearly got engaged with EA services, which became a kind of a social network, where one can take part in online competitions against other players. The fan engagement is expected to continue over the coming quarters.
This area has great monetization potential due to the possible integration with betting services. This may happen, in particular, through a partnership with DraftKings Inc. Maintaining a high level of interest in sports video games might be a significant driver for Electronic Arts' revenue increase in the long run.
Reason 3: Sustainable Financial Conditions
The lockdown measures were beneficial for Electronic Arts, as the popularity of video games significantly increased. In the last quarter, the company's earnings rose by 20.60% compared to the same period last year, while the operating profit margin reached 32%, and EPS was at $1.25 versus $0.69 last year.
With debt burden and stable cash flow, the free cash flow amounted to $1.88B in the last 12 months. Electronic Arts has a significant cash reserve on its balance sheet, around $4B. These funds can be used for dividend payments, share buyback, and M&A deals. Each of this measures will increase the company's value.
Reason 4: Attractive Pricing Compared to the Competition
The EA stock is trading at a discount compared to the major competition. EA's price/earnings and price/free cash flow ratio is 18.70x and 19.30x, respectively, while the average values within the sector are 53.40x and 38.80x.
In addition to the low multiplier values compared to the competition, large banks also improved their forecast for EA value: UBS Group and JPMorgan Chase raised the target prices for EA stock to $170 and $150, respectively, which shows a good upside potential.
How to Use the Investment Idea
- Buy Electronic Arts stock at $129.
- Allocate no more than 3-4% of your portfolio amount. To build a balanced portfolio, you can use our analysts' recommendations for an USD or a EUR portfolio.
- Sell the stock when the price is at $145 per share.
How to Buy Electronic Arts Shares?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: Go to the Web Terminal section, type EA.US (Electronic Arts ticker in the NASDAQ) in the search box, and select Electronic Arts in the search results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search box that shows up, type EA.US (Electronic Arts ticker in the NASDAQ) and select Electronic Arts in the results. You will then see Electronic Arts stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
Buy Electronic Arts shares: Don't miss out on the rising sports video game popularity!
Buy Electronic Arts Shares >>
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