Electronic Arts is the second-largest video gaming company in the Americas and Europe by market cap.
I am bullish on the stock. (See today’s best-performing stocks on TipRanks)
Latest Developments
After initial delays, the company released the latest version of its wartime game series when it debuted Battlefield 2042 earlier this month.
In addition to adding a new game to its arsenal, the company has named Rachel Gonzalez to its board of directors. Gonzalez is currently general counsel for Starbucks (SBUX) and has previously held leadership positions at Sabre (SABR), Dean Foods, and Affiliated Computer Services.
Gaming Sales Overview
Gaming sales rose in October for the sixth straight month. Overall, October sales had increased 16% (year-over-year), bringing the overall industry spend up to $46.7 billion in 2021, exceeding the same 10-month period in 2020 by 12%.
A year-to-date breakdown of segments shows that Hardware sales are up by 53%, Content sales up by 10%, and Accessory sales have also gained a respectable 9%.
The consoles space has also made significant strides. PlayStation 5 platform sales are the highest in dollar amounts, but Nintendo Switch leads with Units sold. Robust PlayStation traction is a big plus for Electronic Arts, distributing platforms for its Battlefield product to benefit from.
Key Metrics
EA is still in a growth phase amid an expected gaming industry CAGR of 13.2% between the years 2021-28.
EA’s CapEx has grown by 13% over the past year, indicating that significant re-investments have been made. Probably more encouraging is the fact that sales still managed to outpace CapEx by 1.11 during the same period.
The gaming firm’s debt levels remain stable at 46% of its total financing mix, leaving its interest coverage at 24.3. These are excellent numbers and they could mean that any additional debt EA accesses will be considered expansionary by the market.
Wall Street’s Take
Wall Street analysts are generally bullish on the stock. Out of 13 ratings, 11 have been assigned as Buy ratings, two as Holds, and none have been Sell ratings. The average Electronic Arts price target on the street is $174.45; this brings potential value upside with it worth 35.9%.
Concluding Thoughts
EA is benefiting from surging sales in gaming software and hardware products. EA’s sales have managed to outpace the firm’s aggressive reinvestment rate, and the company’s balance sheet remains healthy.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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