Video game publisher Electronics Arts NYSE: EA
stock has been weathering the storm from the demand shock in the video gaming industry. Video games are a discretionary item and rising inflation
is causing consumers to pullback on their discretionary spending. Clues to the weakness was indicated by the guidance warning from top graphics chip maker NVIDIA NASDAQ: NVDA
. Video gaming
is highly interactive and provides great entertainment value for the money. The Company believes the darkening macroeconomic
and geopolitical headwinds are driving more people to escape
with video gaming as evidenced by the 20% growth in its live services bookings which represents 70% of total bookings. It’s sports videogaming franchises are driving consistent gains as they release new versions every year. It’s EA player gaming network has amassed nearly 600 million members to date as it builds its own customer ecosystem
to fortify its moat. Is it enough for the Company to buck the downturn in videogaming?
Revolt of the Gamers
Gamers will argue the industry has been setting itself up for a revolt as publishers nickel and dime customers with microtransactions, release incomplete games that require more payments for upgrades, and generally pick pocket customers. In the old days, a gamer would be able to buy a complete videogame with a single purchase. These days, purchasing the game is just the first step in the journey through endless microtransactions, loot boxes, and pay to level up features to get the full experience. This is turning many gamers off. While the online multiplayer aspect has improved engagement, it’s costing gamers more money. There are wide spread complaints about publishers being lazy and complacent with their franchises that literally release the same game year after year under supposed update improvements. These criticisms have been laid across all the major publishers including EA with its sports franchises, Take-Two Interactive NASDAQ: TTWO with its decade old Grand Theft Auto franchise, and Activision NASDAQ: MSFT with its Call of Duty franchise. Next-gen console games for PlayStation 5 NYSE: SNE, Nintendo OTCMKTS: NTDOY Switch and Xbox Series X NASDAQ: MSFT are also pricing higher near the $70 price point with special variant editions selling for north of $100 which include additional characters and content. The lack of innovation with titles that just get re-released the following year with very little gameplay improvements is turning off gamers as they feel deprived of value for the money they’re spending.
Here’s What the Charts Say
Using the rifle charts on the weekly and daily time frames, we can interpret the price action on EA stock. The weekly rifle chart bounced after making a swing low at the $109.30 Fibonacci (fib) level. The bounce peaked at the $142.79 before selling back down. The weekly chart can’t seem to follow through on a trend. The weekly rifle chart 5-period moving average (MA) is attempting a breakdown at $129.69 through the 15-period MA at $129.81 with a 50-period MA at $130.51. The weekly 200-period MA at $119.58. The weekly Bollinger Bands (BBs) sit at $113.06 lower envelope and $144.41 upper envelope. The weekly market structure low (MSL) triggers above $133.14. The daily rifle are a cluster with the 5-period MA attempting to slope up at $126.37 along with the 15-period MA at $127.55. The daily 50-period MA is flat at $128.61 and 200-period MA flat at $128.61. The daily upper BBs sit at $136.49 and lower BBs at $121.21. The daily stochastic is bouncing through the 20-band. Attractive pullback levels sit at the $125.87 fib, $122.54, $119.23 fib, $116.65 fib, $113.32 fib, and the $110.53 fib level.
Electronic Arts announced in May that it’s exiting the FIFA license after FIFA 23 is released on Sept. 30, 2022. The license has been effective for 30 years but is coming to an end as the Company failed to negotiate a new licensing deal with FIFA. The EA Sports FIFA series is the top selling sports videogame franchise with over 325 million copies sold in the past 29 years. Rather, they will be replacing it with the new EA SPORTS FC brand seeking to partner with leagues like LaLiga and renewed licenses with Major League Soccer, Saudi Pro League, and Liga Professional de Futbol de Argentina. It is worth noting that this will result in losing the rights to FIFA and World Cup, but the Company still retains licensing deals with leagues, individual soccer teams and players, just not under the FIFA or World Cup banners. Rumor has it, this is saving Electronic Arts north of $150 million annually.
Firing on All Cylinders
On Aug. 2, 2022, Electronic Arts released its fiscal first-quarter 2023 results for the quarter ending June 2022. The Company reported an earnings-per-share (EPS) profits of $1.11 beating analyst estimates for $0.95, by $0.16. Revenues fell (-2.8%) year-over-year (YoY) to $1.3 billion beating $1.26 billion consensus analyst estimates. Net bookings for trailing 12 months was up 22% YoY to $7.48 billion. Live services and other net bookings rose 20% YoY representing 73% of total net bookings. The EA player network grew to nearly 600 million active accounts. FIFA Ultimate Team engagement rose 40% YoY in weekly and daily average players. The FIFA Mobile game app delivered the highest net bookings quarter in history with record high DAUs growing 10% YoY. FIFA and the launch of F1 drove net bookings outperformance.
It’s Definitely in the Game
Electronic Arts CEO Andrew Wilson commented, “EA delivered strong results in Q1 with our growing player network deeply engaged in new games and live services. Our expanding EA SPORTS portfolio and owned IP franchises continue to power resilience and longevity in our business. Our teams remain focused on what they do best – making amazing experiences that inspire new generations to play, watch, create, compete and connect.” CEO Wilson has stated that sports is the evergreen form of engagement, and its La Liga cross-media partnership is demonstrating this. FIFA 22 had the largest net bookings ever as the driver of dependable growth for years.
Raised Forward Guidance
Electronic Arts raised Q2 fiscal 2022 revenue guidance seeing GAAP EPS at $1.54, up from $1.34, but shy of $2.64 consensus analyst estimates. The Company sees fiscal 2022 net booking revenues at $7.4 billion, up from $7.3 billion, but shy of $7.44 billion consensus analyst estimates.
EA SPORTS FC and LaLiga In
During the earnings conference call, the Company will launch its most “expensive FIFA” ever this year as demand is extraordinary driven by the World Cup. Afterwards, they will push the EA SPORT FC brand with 300 partners to its community of hundreds of millions of players. CEO Andrew concluded, “And so, while the name of the game will change the nature of the experience and the connection that players have to the game, to the leagues and teams they love and to the players they play with and play against in the community, that's many hundreds of men strong. None of that changes. We'll invest strongly into that and we're very excited about what that future will bring. And again, we announced our new LaLiga partnership which is going to expand on the nature of things we can do.” EA struck a new five-year deal making EA the official sponsor of LaLiga.
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