Shares of video game maker Electronic Arts (NASDAQ:EA) got a big boost following a round of better-than-expected quarterly results that saw FC 24 (EA’s top soccer game) put up stellar numbers, even without the FIFA license. Indeed, EA has proven that it’s doing just fine without the word “FIFA” in the title of the game, putting to rest many fears over what would happen to one of its biggest games as it took on a generic title.
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Undoubtedly, EA took quite a big risk by choosing not to renew its FIFA license in a deal that would have been worth north of $1 billion for four years. The FIFA brand is a big deal in the global soccer (or football, depending on where you live) market. Still, $1 billion is a pretty penny, and that money could go toward development to make the game even better.
As EA moves into the holiday season and a new year, the real question will be if EA can keep riding on the early success of its recent launches. Many analysts on Wall Street think it can as EA inches ever so closer to the higher end of its multi-year consolidation channel. Though it’s too early to tell if EA stock will be in for a breakout, I am bullish on the stock due to its valuation and the company’s solid fiscal second-quarter earnings numbers.
EA May Not Need FIFA, After All
Indeed, not renewing the license now looks like a smart move on EA’s part. At the time, however, it seemed like a pretty risky one. The players have shown that they’re still willing to pick up the game, even without the legendary FIFA title. As long as EA can continue to improve its game and generate decent ratings, I do not doubt that the title will continue to be a cash cow for the firm for many years to come.
FC 24 reportedly brought in more than 14.5 million active accounts just four weeks after launch. The solid numbers likely gave management enough confidence to guide for net bookings of $2.25-2.45 billion for its coming holiday quarter, up from the $1.82 billion posted in the most recent (second) quarter.
Bank of America analyst Omar Dessouky was impressed with the early numbers from the FC 24 title. He’s also a big fan of the valuation, which he points out is close to five-year lows at current levels. I believe Mr. Dessouky is right to be bullish on EA stock while it’s trading in line with peers.
At writing, EA stock trades at 36.2 times trailing price-to-earnings, just slightly higher than the electronic gaming & multimedia industry average of 33.4 times.
FC 24 is just one of many sports titles that could help give shares of EA a nice jolt going into the holiday season. And if FC 24 continues to post decent numbers, the value of sporting league licenses could come into question. Either way, it’s clear that players don’t care as much about having FIFA slapped on their game as much as I (and many) have initially thought.
If EA can break up with the legendary FIFA after 30 years without taking a hit, perhaps it may be viewed as having a bit more leverage when it comes time to renew licenses across its other sports offerings. For now, it’s doubtful that EA will drop the NHL and Madden NFL brands from its titles. However, the early success of FC 24, I believe, shows that jacking up the prices on licensing deals by too large an amount may not be a wise move.
Is EA Stock a Buy, According to Analysts?
On TipRanks, EA stock comes in as a Moderate Buy. Out of 15 analyst ratings, there are 10 Buys and five Holds. The average EA stock price target is $146.47, implying an upside of 10.3%. Analyst price targets range from a low of $130.00 per share to a high of $162.00 per share.
The Bottom Line on EA Stock
FC 24 doesn’t seem to need FIFA, after all. At least, that’s what I took away from the firm’s latest round of quarterly results. If anything, dropping the FIFA title may have been a catalyst for the football franchise, with the title poised to become the biggest launch in the series. Moving forward, EA’s FC era may be even more lucrative than the FIFA one if the firm has more financial flexibility to reinvest in the game to give the players what they want.
Bank of America’s Omar Dessouky has a $150.00 price target on the stock, which entails upside potential of 14.2%. Even with macro headwinds weighing, the holiday season could be a bright one for EA as it rides on the success of its strong sports titles.
