That Was Then, This Is Now
There’s been growing speculation that tech, and specifically software, are in a bubble. The biggest comparison is the mad run-up to all-time highs set in the 1999/2000 time period but I have to say, that was then and this is now. Then, the market was speculating on what the Internet and technology might become, now the market is rushing into those names that have proven their worth.
If nothing else, the COVID-19 pandemic has proven that technology works. I’ve said it before and I’ll say it again, the global shift to technology was already underway. The pandemic accelerates that shift at ALL levels. When you think about it, it takes three things to make the internet work and software is one of them. You have to have the infrastructure of technology, the cables, and networks, you have to have the hardware to connect, the computers laptops and mobile devices, and you have to have the software to make them do whatever it is you want them to do. To drive you need the car and the gas to make it go.
A Leader In Digital Entertainment
Digital entertainment is one of the biggest winners from the pandemic and Electronic Arts (NASDAQ: EA) results prove it. While folks have been shut in at home they’ve been turning to games and gaming as one of their pass-times. In terms of the business, Electronic Arts saw its revenue surge 87% from the prior year’s Q1 on rising demand across all platforms.
To put the company’s strength in perspective, the $1.39 billion in net-bookings exceeded consensus by $0.33 billion and the company’s own guidance by $0.39 billion or 40%. Thinking about this in terms of the full-year consensus, the full-year consensus is already too-low and likely to be increased very very soon.
On a segment basis, Apex: Legends was the highest performing title in the lineup. Apex: Legends saw its user engagement at the highest since the first season. Madden Football, another of the company’s top-selling brands, saw its user base grow 140% while FIFA soccer grew 100%.
“Player engagement through the first quarter was exceptionally high, and well above our forecast,” said COO and CFO Blake Jorgensen. “Our Stay Home, Play Together initiatives have been a strong tailwind for the business, as players look for safe and social entertainment in these difficult times.”
Looking forward, Electronic Arts has raised guidance to a range above the current consensus and I see no reason why it won’t be raised again. The COVID-19 pandemic is far from over and rising rates of infection are sending people back indoors. Guidance for the year is now $5.95 million net bookings versus the $5.63 consensus and EPS in the range of $2.97.
The Technical Outlook: Breaking Out To New Highs
Shares of Electronic Arts have been moving steadily higher since hitting their March lows. Like other perfectly positioned pandemic-plays, the rebound from the lows not only recouped the losses but went on to set new high after new high. Today’s news has the shares up again, about 2.2% in early action, and breaking out to yet another new high.
The indicators are lagging a bit, stochastic is firing a bullish crossover but MACD hasn’t, so there is reason to be cautious but the overall picture is bullish. Provided the stock can maintain a close above what should now be new support I see price action moving up to retest the all-time high near $150. If price action breaks above that level we could see this stock double.
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20 "Past Their Prime" Stocks to Dump From Your Portfolio
Did you know the S&P 500 as we know it today does not look anything close to what it looked like 30 years ago? In 1987, IBM, Exxon, GE, Shell, AT&T, Merck, Du Pont, Philip Morris, Ford and GM had the largest market caps on the S&P 500. ExxonMobil is the only company on that list to remain in the top 10 in 2017. Even just 15 years ago, companies like Radio Shack, AOL, Yahoo and Blockbuster were an important part of the S&P 500. Now, these companies no longer exist as public companies.
As the years go by, some companies lose their luster and others rise to the top of the markets. We've already seen this in the last few decades with tech companies surpassing industrial and energy companies that once dominated the S&P 500. It's hard to know what the next mega trend will be that will knock Apple, Google and Amazon off the top rankings of the S&P 500, but we do know that companies won't stay on the S&P 500 forever.
We've identified 20 companies that are past their prime. They aren't at risk of a near-term delisting from the S&P 500, but they are showing negative earnings growth for the next several years. If you own any of these stocks, consider selling them now before they become the next Yahoo, Radio Shack, Blockbuster, AOL and are sold off for a fraction of their former value.
View the "20 "Past Their Prime" Stocks to Dump From Your Portfolio".