Electronic Arts Is Up By 11%, Here Is Why

Key Insights

  • Electronic Arts beats analyst estimates on earnings and raises its quarterly dividend. 
  • The company’s guidance for 2023 implies further growth. 
  • Electronic Arts is moving away from its long-term partnership with FIFA. 

Electronic Arts Stock Rallies After Strong Report

Shares of Electronic Arts gained strong upside momentum after the company released its fiscal Q4 report. The company reported GAAP earnings of $0.80 per share, beating analyst estimates. Fourth-quarter bookings of $1.75 billion were mostly in line with analyst expectations.

Electronic Arts decided to increase its quarterly cash dividend from $0.17 to $0.19 per share. This decision served as an additional bullish catalyst for the stock.

The company has also announced that it would move away from its partnership with FIFA and that its soccer games will be released under the EA Sports FC brand from 2023. Electronic Arts paid up to $150 million per year for the right to use the FIFA brand, so the company will save some money.

At the same time, FIFA has already announced that it would develop a “major new simulation football title for 2024”, so the competition in this market segment will increase.

What’s Next For Electronic Arts?

Electronic Arts stock has been moving lower for several months amid concerns about the slowdown in the video game industry. However, the report indicated that demand for the company’s products remained strong.

In the next fiscal year, Electronic Arts expects net bookings of $7.9 billion – $8.1 billion, compared to $7.52 billion in 2022. The company also expects to report net income of $793 million – $815 million.

The market feared that Electronic Arts’ results and guidance would be worse, so traders rushed to buy the stock that was down by about 15% in 2022 ahead of the release of the earnings report.

The stock is trading at roughly 15 forward P/E, so it remains reasonably cheap even after today’s rally. In this light, Electronic Arts stock has a good chance to gain additional upside momentum in the upcoming weeks.

For a look at all of today’s economic events, check out our economic calendar.

Best Video Game Stocks To Buy Now

Key Insights

  • Video game stocks have been under pressure in recent months as traders were worried about declining videogame sales. 
  • As a result of the recent pullback, video game stocks reached more attractive valuation levels.
  • This market segment may attract speculative traders who are willing to bet that the pullback was not justified. 

Video game stocks have lost momentum in recent months as traders prepared for the end of the pandemic, which would decrease demand for stay-at-home activities. Some video game stocks have reached reasonable valuation levels, which can make them attractive for speculative traders.

Electronic Arts

Electronic Arts stock is down by about 8% year-to-date, so the stock has outperformed S&P 500. The company is known for its popular sports franchises, which provide a stable source of income.

Currently, analysts expect that Electronic Arts will report earnings of $6.9 per share in the current year and earnings of $7.46 per share in the next year, so the stock is trading at 16 forward P/E.

Analyst estimates have been mostly stable in recent months despite worries about declining demand for video games. This stability highlights the company’s wide moat and makes the stock interesting for value-oriented traders.

Take-Two Interactive

Take-Two Interactive stock reached highs near the $215 level at the start of 2021 and has been moving lower ever since. At the start of this year, the maker of the popular Grand Theft Auto series announced that it would buy Zynga to expand its presence in the mobile market.

Traders did not like the deal so Take-Two Interactive stock gained additional downside momentum after the news on the Zynga purchase were released.

While the recent performance has been weak, Take-Two Interactive stock declined towards reasonable valuation levels. The company is expected to report earnings of $6.19 per share in the next year, so the stock is trading at 20 forward P/E, which looks rather cheap for one of the leading video game stocks.

For a look at all of today’s economic events, check out our economic calendar.

Grand Theft Auto Publisher Sees a Future in NFTs

Grand Theft Auto publisher Take-Two sees the potential in Non-fungible tokens(NFT) even if it’s not ready to invest in them just yet. The company CEO, Strauss Zelnick, reportedly said this in a conversation with NintendoLife.

GTA Eyes Future in NFT

According to Zelnick, the company believes in rare goods and collectibles. It considers NFT to be real since they are digital goods, and the company has been selling digital goods for a while now. But it’s concerned about the speculation within the industry. 

He further stated that the company wants “to make sure that consumers always have a good experience every time they engage with our properties and losing money on a speculation is not a good experience, so we’re going to stay away from speculation.”

But the company remains convinced that there’s an opportunity for NFT to be part of its offerings later in the future.

The decision of the game publisher runs contrary to the general trend in the market, where several companies and brands are diving headfirst into the NFT space.

Gaming Companies Joining NFT Wagon

Many gaming companies are already in on the action or considering it. For example, Ubisoft launched an NFT platform last year.

Though the general reception from Gamers was negative, the company insists that this is an innovative step that will take users some time to adapt to. 

The general opinion of gamers on NFT hasn’t been that positive. This has prevented several gaming companies from getting involved. 

Team17 recently announced it’ll launch Worms NFT before eventually backing out. Other popular gaming companies, including Electronic Arts and Square Enix, have mentioned the potential of NFT and blockchain games as the future of gaming.

There are also gaming companies that are totally against the ideas of NFT. The developer of the Wayward Realms, OnceLost Games, has described NFT involvement in the gaming industry as likely to cause more harm than good. 

While this might be a standalone opinion, it shows that the acceptance of NFT is far from complete, even in the tech scene.

Brace Yourself For Another Wild Month In Stock Markets

For the year, the Dow is down -6%, the S&P 500 is down just over -9%, and the Nasdaq has lost -14.7%. The previous record-holder is January 2009, an ugly moment for the economy, when the stock market fell -8.6%. In addition, the VIX – aka the CBOE Volatility Index – has actually dropped back to around 31 after topping 37 earlier this week, its highest point since November 2020.

Keep in mind, the index isn’t registering anywhere close to levels reached during other periods of “extreme” volatility. For example, the index, which is measured between zero and 100, hit its highest point of almost 83 during the financial crisis in 2008. Its most extreme point during the pandemic was around 66 in March 2020. So, by comparison, this week’s volatility has been rather mild.

Federal Reserve

Some insiders equate the wild swings in stock prices to investors, particularly “big money,” trying to establish a new baseline for stock valuations minus the Fed’s easy money policies that have driven a massive amount of cash into markets since the pandemic began in 2020.

At its height, the Fed was pumping as much as +$120 billion per month into the system via its asset purchase program, ballooning its balance sheet to now nearly $9 trillion.

At the same time, the Fed has held its benchmark rate at near-zero and, before that, hadn’t even attempted to raise rates since 2018, and then only briefly. The last full-cycle of rate hikes was 2015. What’s more, investors haven’t really had to factor for inflation since the early 90s and it hasn’t been this high since the 80s.

Bottom line, whatever the new “normal” ends up looking like, it will be dramatically different from the pre-pandemic investing landscape. I’ve heard several large stock traders saying it seems to be the return of Alpha instead of the race to levered Beta. I hear others on Wall Street referencing it to a bit of league recreational youth baseball team where everybody now gets an award simply for participation, but then kids run into a rude awakening when performance really starts to matter.

It feels like we are there in the stock market; every business that was coming into the market was simply being rewarded with participation points, now people are starting to keep a real scorebook and counting the strikeouts and runs scored.

Economy still roars

The good news is that the U.S. economy continues to roar. Historically, a combination of moderate inflation and moderate interest rates has led to some of the biggest boom times for U.S. Last week, the Commerce Department said Q4 Gross Domestic Product (GDP) grew at an annualized rate of +6.9%, stronger than Q3’s +2.3% and well above Wall Street expectations of around +5.7% growth.

Consumer spending climbed at a +3.3% annual pace led by a +4.7% increase in services spending. But the real stand out was private investment which rocketed +32% higher, boosted by a surge in business inventories as companies stocked up to meet higher customer demand. Rising inventories, in fact, contributed nearly +5% to Q4 GDP growth.

On the one hand, the inventory build is positive because it indicates an easing of supply chain dislocations that should in turn help with inflation pressures. On the other hand, many economists note that the big boost from retailer and wholesaler restocking is not likely to be repeated.

Companies will also likely start to unwind at least some of that inventory in the quarters ahead, which could drag overall 2022 GDP, especially if consumer spending also drops off. And investors are more closely tracking consumer behavior as inflation continues to rise.

With consumer spending accounting for about 70% of the U.S. economy, any signs that belts are tightening or moods are getting overly pessimistic will likely set off some alarm bells.

Data to watch

Turning to next week, it will be another busy one for both key economic data as well as earnings. The main economic data highlight will be the January Employment Situation on Friday. Other key data includes ISM Manufacturing, Construction Spending, and the JOLTS report on Tuesday; ADP’s private payrolls report on Wednesday; Productivity & Costs, Factory Orders, and the ISM Non-Manufacturing Index on Thursday.

Earnings wise, results are due from NXP Semiconductor and Trane on Monday; Advanced Micro Devices, Alphabet, Amgen, Chubb, Electronic Arts, Exxon, General Motors, Gilead Sciences, Match Group, PayPal, Sirius XM, Starbucks, and UPS on Tuesday; AbbVie, Aflac, Allstate, Boston Scientific, CNH, Corteva, D.R. Horton, Ferrari, Humana, Johnson Controls, Meta (Facebook), MetLife, Novartis, Novo Nordisk, Qualcomm, Siemens, Thermo Fisher, TMobile, and Waste Management on Wednesday; Activision Blizzard, Amazon, Biogen, Carlyle Group, Check Point, Cigna, Clorox, ConocoPhillips, Deckers Outdoors, Eli Lilly, Estee Lauder, Ford, Hanesbrands, Hershey, Honeywell, Ingredion, Merck, Pinterest, Quest Diagnostics, Royal Dutch Shell, Snap, SnapOn, Wynn Resorts, and Xylem on Thursday; and BristolMyersSquibb, CBOE, Phillips 66, Regeneron, and Sanofi on Friday.

Bottom line, brace for another huge week of extreme volatility.

Wall Street Week Ahead Earnings: Alphabet, PayPal, Exxon Mobil, Meta, Qualcomm and Amazon in Focus

Investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion will hit the stock market hard next week, making the big tech earnings that much more critical. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant to see how it impacts earnings in 2022.

Earnings Calendar For The Week Of January 31

Monday (January 31)

TICKER COMPANY EPS FORECAST
CBT Cabot $1.06
CRUS Cirrus Logic $1.91
FN Fabrinet $1.28
HLIT Harmonic $0.09
NXPI NXP Semiconductors $2.67
PCH PotlatchDeltic $0.48
RYAAY Ryanair Holdings $-0.15
SANM Sanmina $0.91
TT Trane Technologies $1.31
WWD Woodward $0.83

 

Tuesday (February 1)

IN THE SPOTLIGHT: ALPHABET (GOOGLE), PAYPAL, EXXON MOBIL

ALPHABET: The parent of Google and the world’s largest search engine that dominates internet search activity globally is expected to report its fourth-quarter earnings of $26.71 per share, which represents year-over-year growth of about 20% from $22.3 per share seen in the same period a year ago.

The Mountain View, California-based internet giant would post revenue growth of nearly 27% to $72.133 billion from $56.9 billion a year ago. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“Key Alphabet (GOOG) ’22 Ad Buyer Survey conclusions: i) Google Search remains highest ROI platform; ii) YouTube expected to gain ad share ’21-’23; & iii) GOOG Search & YouTube are the top platforms for ad buyers reallocating budget due to iOS changes. We est. GOOG’s share of WW Digital adv. (x-China) goes from 41% to 37% ’22-’27. We extended model to ’27, PT to$3,500 vs. prior $3,360, reiterate Outperform,” noted John Blackledge, equity analyst at Cowen.

PAYPAL: The digital payments company is expected to report its fourth-quarter earnings of $0.86 per share, which represents year-over-year growth of about 15% from $0.75 per share seen in the same period a year ago. The San Jose, California-based company would post revenue growth of over 12% to around $6.9 billion.

EXXON MOBIL: The oil company will see its earnings rise multi-fold in the fourth quarter thanks to higher energy prices and a waning pandemic that helped it bounce back after a tough period in 2020.

The Irving Texas-based company is expected to report its fourth-quarter earnings of $1.73 per share, which represents year-over-year growth of over 5,666%, up from $0.03 per share seen in the same period a year ago.

The U.S. largest publicly traded oil company is expected to report a 97.3% increase in revenue to $91.845 billion from $46.54 billion a year ago. On Dec 30, the Irving Texas-based company in its regulatory filing said that higher oil and gas prices would enable it to achieve annual profitability starting in 2021 with an operating profit increase of up to $1.9 billion.

The U.S. largest publicly traded oil company hinted that oil and gas earnings could decrease by up to $1.2 billion as a result of one-time charges for asset impairments and contractual costs. Exxon announced late last year announced that a sharply higher operating profit in oil and gas, prompting Credit Suisse, Scotiabank, and JPMorgan to raise their fourth-quarter earnings estimates.

“Improving FCF outlook and dividend sustainability. With a more constructive commodity price outlook, lower capital spending, and additional cash operating cost savings, the dividend is covered in 2021 and averages >100% over the next 5-years on our estimates. Improving dividend sustainability supports yield compression for Exxon Mobil (XOM) relative to CVX,” noted Devin McDermott, Equity Analyst and Commodities Strategist at Morgan Stanley.

“Cost cuts defend the dividend. In 2020, Exxon Mobil (XOM) reduced 2022-25 spending plans to $20-25B from $30-35B (recently extended to 2027), improving dividend sustainability while limiting further pull on the balance sheet. Additionally, Exxon Mobil (XOM) is targeting $6B in structural operating cost reductions by 2023 which should put upward pressure on consensus FCF estimates.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 1

TICKER COMPANY EPS FORECAST
AMD Advanced Micro Devices $0.69
AMCR Amcor $0.18
ASH Ashland Global Holdings $0.93
CTLT Catalent $0.79
CB Chubb $3.34
EA Electronic Arts $2.81
XOM Exxon Mobil $1.73
GM General Motors $0.84
NMR Nomura Holdings $0.2
SBUX Starbucks $0.8
UBS UBS Group $0.24
UPS United Parcel Service $3.05

 

Wednesday (February 2)

IN THE SPOTLIGHT: META PLATFORMS (FACEBOOK), QUALCOMM

META PLATFORMS (FACEBOOK): The world’s largest online social network is expected to report its fourth-quarter earnings of $3.78 per share, which represents a year-over-year decline of over 2% from $3.88 per share seen in the same period a year ago.

The Menlo Park, California-based social media conglomerate would post revenue growth of over 30% to around $33.04 billion. The social media giant has consistently beaten consensus earnings estimates in most of the quarters in the last two years, at least.

QUALCOMM: The world’s biggest mobile phone chipmaker is expected to report its fiscal first-quarter earnings of $2.77 per share, which represents a year-over-year decline of over 40% from $1.97 per share seen in the same period a year ago.

The chip manufacturer would post revenue growth of nearly 27% to $10.45 billion. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

Qualcomm forecasts GAAP revenue in the first quarter of fiscal 2022 to be between $10 billion and $10.8 billion. On a non-GAAP basis, earnings will likely range from $2.90 to $3.10 per share, while GAAP earnings will likely range from $2.53 to $2.73 per share, according to ZACKS Research.

“After underperforming the SOXX for most of 2021 until a sharp rally late in the year, we see a strong setup for a now Apple-overhang-free Qualcomm in 2022 as investors begin to appreciate the diverse revenue drivers beyond Wireless. Expect solid print and guide, with focus on execution and growth in the connected intelligent edge and update our estimates accordingly,” noted Matthew Ramsay, equity analyst at Cowen.

“We reiterate our price target of $210 based on 17.5x our F2023 EPS estimate of $12.0 and our Outperform rating.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 2

TICKER COMPANY EPS FORECAST
EAT Brinker International $0.5
CHRW C.H. Robinson Worldwide $1.85
CPRI Capri Holdings $1.67
CTSH Cognizant Technology Solutions $1.03
RACE Ferrari $1.08
FB Meta Platforms $3.78
MET MetLife $1.63
TMUS T-Mobile $0.2

 

Thursday (February 3)

IN THE SPOTLIGHT: AMAZON

The e-commerce leader for physical and digital merchandise, Amazon, is expected to report its fourth-quarter earnings of $3.9 per share, which represents a year-over-year decline of over 70% from $14.09 per share seen in the same period a year ago.

However, the Seattle, Washington-based multinational technology giant would post revenue growth of about 10% to around $138 billion. The company has beaten earnings per share (EPS) estimates most of the time in the two years.

“We are reiterating our BUY rating and our price target to $3,900. Our price target is based on our updated discounted cash flow model, including our long-term adj. EBITDA margin forecast of 22.0% versus 13.7% in 2020,” noted Tom Forte, MD, Senior Research Analyst at D.A. DAVIDSON.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 3

TICKER COMPANY EPS FORECAST
ABB ABB $0.38
ALL Allstate $2.72
COP ConocoPhillips $2.23
LLY Eli Lilly $2.37
HON Honeywell International $2.09
PRU Prudential Financial $2.44
SU Suncor Energy $0.95
SYNA Synaptics $2.63

 

Friday (February 4)

TICKER COMPANY EPS FORECAST
APD Air Products & Chemicals $2.51
AON Aon $3.33
BMY Bristol Myers Squibb $1.85
CBOE Cboe Global Markets $1.41
ETN Eaton $1.73

 

META: Specifically for Metaverse Exposure but Not Yet Convincing

After Mark Zuckerberg renamed Facebook to Meta Platforms (FB), the metaverse has suddenly become a hot topic with search interest on Google Trends peaking at a value of 100, signifying immense popularity. However, there is currently no universally accepted definition of the metaverse apart from some key words like “virtual reality”, or “advanced Internet”. Learning from Blockchain’s world where there are already metaverse projects like Sandbox where land can be exchanged against payments of millions of dollars, it could be defined as a virtual universe with a functional economy.

Of course, this definition is not straightforward and to be frank, no one knows exactly what shape the metaverse will take. But, for investors willing to invest hard-earned money in ETFs like the Roundhill Ball Metaverse ETF (META), it is important to understand which sectors are most likely to benefit. Some use cases are already being proposed such as attending a virtual concert, taking an online trip or creating digital art in the form of blockchain-powered NFTs or Nun Fungible Tokens.

Now, these applications will require a lot of computing power due to increased utilization of artificial intelligence and augmented reality (“AR”). At the same time, for communication purposes, there will be requirement for next generation Wi-Fi and 5G. Roundhill Investments does list some sectors like Compute, Networking, Virtual platforms, Interchange standards, etc from where they choose companies to be included in their fund, but for illustration purposes, I provide a chart which I recently used it in an article on VanEck Semiconductor ETF (SMH).

Description: https://responsive.fxempire.com/v7/_fxempire_/2021/12/word-image-274.png?func=cover&q=70&width=436

Source: Chart prepared by author using data from IEEE Spectrum and augmented to highlight metaverse demand

This chart basically shows semiconductor revenues per sector (with most coming from computing at 34.5%), but, since I have highlighted the technologies needed to build the metaverse, I use it to explore how META’s holdings fit the “meta” investment rationale.

The META rationale

First, META tracks the Ball Metaverse Index, the first index designed to track the performance of the metaverse.

Second, the ETF’s main holding is NVDIA (NVDA) at 8.34% of total assets, also happens to constitute a significant chunk of SMH’s basket. Now, as a designer of graphics processing units for the gaming and Bitcoin markets, this chip play whose products are vital for computing should be one of the main beneficiaries as a building block for everyone’s “virtual space”. Additionally, NVDIA is a system-on-a-chip unit’s provider for the mobile computing and the automotive industry.

Third, there is FB itself, and with more than 2.9 billion users as at the third quarter of 2021, and its success as a highly addictive social networking brand, there is no doubt that it will profoundly change our lives by rendering more virtual than ever, helped by a Covid-induced restriction in physical interactions.

https://static.seekingalpha.com/uploads/2021/12/26/49663886-16405745860315373.png

Source: RoundHill Investments

As for software plays like Microsoft (MSFT), Autodesk (ADSK), Unity Software (U), the metaverse is already proving to be a game-changer for working from home due to Covid. Continuing along the same thought process, instead of seeing their colleagues on a video call screen, employees could join them in a virtual office. Here, one of the main benefits of the metaverse is believed to be “presence,” meaning the feeling of physically engaging places and characters instead of looking at them through a laptop or smartphone screen.

Coming to Apple (AAPL), it has one of the world’s largest AR platforms with hundreds of millions of AR‑enabled devices, as well as thousands of related apps on the App Store. Now, one of the essential building blocks of the metaverse is interoperability whereby users must be able to move throughout the metaverse, while effortlessly make the transition to the physical world. For this purpose, they need AR devices which are supported by Apple’s iPhones. There is also an analyst forecasting that Apple’s “mixed reality headset will come out in the late 2022 or early 2023”, with the Apple Glasses to follow in 2025.

Apple should also benefit through its gaming division just like Roblox (RBLX), an online game platform which allows users to play games created by other users. In a metaverse scenario, one can envisage players retaining their avatar while hopping from one game to another or even a virtual shop for purchasing purposes, regardless of the brand of the user’s device.

After painting an enthralling picture of META, I now address some pain points.

META’s shortcomings

Since the concept of metaverse is relatively new, there will be many use cases that will arise in the future, but the space is also likely to be under intense regulatory scrutiny as lawmakers become wary of the power of big techs at extending their control on our social lives to a further degree through virtual reality. Governments may for example restrict the number of hours we can spend in the metaverse just like China is restraining the number of hours children can play games. Furthermore, Apple with its IOS operating system is only a part of the global smartphone ecosystem and it will have to be a metaverse which also encapsulates the Android operating system by Google (GOOG) with its brand of AR. META certainly includes the Android play, but only at a paltry 1.71% of holdings.

Pursuing further, META does include pioneers in content, commerce, and social for the metaverse, such as Sea (SE), Amazon (AMZN) and Snap (SNAP), and I also noted that it includes web infrastructure companies like CloudFlare (NET). On the other hand, I noted the absence of wireless plays from its portfolio. Also, the fund managers do not mention Industrial 4.0 applications, namely 3D printing which is crucial to allow transition from the virtual to the physical world.

Looking for further support from the share performance side, despite all these hot talks about the metaverse and META having already crossed the $900 million in total assets under management within six months, it managed to produce a meager 2.59% gain during this time. This is dwarfed by SMH or even the Technology Select SPDR ETF (XLK), with both these two funds producing above 17% gains in the same time period.

https://static.seekingalpha.com/uploads/2021/12/26/49663886-16405745860053453.png

Source: tradingview.com

This calls for a dose of realism.

Conclusion

There is no doubt that META is an innovative ETF with its index consisting of a tiered weight portfolio of globally-listed companies who are actively involved in the metaverse, but this whole concept is still new and rapidly evolving. I also like the fact that Roundhill Investments have also included companies like Block (SQ) and Electronics Art (EA), thus showing their perfect understanding of the Blockchain side of things.

Still, I am not convinced as to the percentage of asset held for each stock. Now, as an actively managed fund charging 0.75% in fees, the portfolio is likely to see rapid changes, but at this stage, it is preferable to wait. Finally, those who want early metaverse exposure, both SMH and XLK can be considered as proxy ETFs for this purpose, and come at lower expense ratios of 0.35% and 0.12% respectively.

Disclosure: I am long XLK.

FIFA to Expand Gaming and e-Sports Portfolio

This comes after a report by The New York Times earlier this week that said videogame publisher Electronic Arts is struggling to renew the contract that would let EA use FIFA’s name for its top-selling soccer franchise.

“The future of gaming and eSports for football stakeholders must involve more than one party controlling and exploiting all rights,” FIFA said, adding that technology and mobile companies are now actively competing to be associated with FIFA, its platforms, and global tournaments.

“FIFA” game publisher EA said last week that it was reviewing naming rights agreement with FIFA, which is separate from all other official partnerships and licenses EA has in the football arena.

EA’s current contract expires next year after the Qatar World Cup, with FIFA seeking increased revenue, and EA pushing to expand the FIFA brand into new areas, like NFTs and highlights of real games.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Chavi Mehta in Bengaluru; Editing by Shailesh Kuber)

Why Shares Of Electronic Arts Moved Below $140 Today?

Electronic Arts Video 12.05.21.

Electronic Arts Stock Declines After The Release Of Quarterly Report

Shares of Electronic Arts found themselves under pressure after the company released its quarterly report. Electronic Arts reported net revenue of $1.35 billion and earnings of $0.26 per share, missing analyst estimates. The company stated that net bookings for fiscal 2021 were $6.19 billion, which was above expectations.

Electronic Arts noted that it repurchased 2.4 million shares for $325 million during the quarter. The quarterly dividend is $0.17 per share, so the stock yields about 0.49% at current levels which is not sufficient enough to attract income-oriented investors.

For the next fiscal year, the company expects to report net revenue of $6.8 billion and earnings of $1.34 per share, while net bookings are expected to total $7.3 billion.

What’s Next For Electronic Arts?

Electronic Arts provided a decent report and offered optimistic guidance, but it looks that the market needs more in current market environment. Tech stocks have been under pressure in recent trading sessions, and this pressure may grow after today’s U.S. inflation reports which indicated that inflation was rising faster than expected. The yield of 10-year Treasuries has already moved from 1.60% to 1.68%, which is bearish for growth stocks.

Another important question for Electronic Arts investors is whether the reopening of the economy will hurt growth of electronic gaming activity. At this point, there are no signs that this is happening, and Electronic Arts noted that its live services had strong momentum.

Electronic Arts shares are mostly flat year-to-date after an optimistic start of 2021, and the company’s peers like Take-Two Interactive or Activision Blizzard have also fallen out of investors’ favor in recent months. At this point, Electronic Arts stock does not have enough internal catalysts to move against the general market trend which has been bearish for tech stocks in recent weeks. If yields move even higher and tech stocks continue to lose ground, Electronic Arts shares will likely follow the trend.

For a look at all of today’s economic events, check out our economic calendar.

Why is “Bad News” is “Good News” for SP500?

Investors start this week still digesting the April Employment Report which delivered a big miss on Friday, showing a gain of just +266,000 jobs versus expectations for close to +1 million. The unemployment rate ticked up slightly to +6.1% while average wages and workweek saw unexpected increases.

Again, this was a moment on Wall Street when “bad news” was digested as “good news” as it keeps the Fed from raising rates.

Fundamental analysis

There is a lot of debate as to why the April jobs data was so sluggish with many blaming enhanced unemployment benefits. The report also showed leisure and hospitality added some +331,000 jobs while manufacturing payrolls actually fell, led by a decline in autoworkers. Economists believe those declines are probably related to the global chip shortage. ISM data last week indicated that some losses in April are related to other various supply chain constraints that are curbing manufacturing output and has forced companies to cut both hours and workers.

Employers also continue pointing to a skills mismatch, a problem many faced well before the pandemic. Bottom line, there are about -8 million fewer Americans in the workforce now versus February 2020. There seem to be a lot fewer women coming back and a lot fewer over the age of 55. Over the last five months total employment is only up by +1.5 million workers. So the Fed seems somewhat correct in their statement and forecast that it’s going to take time to get the U.S. workforce back to pre-pandemic levels and a big reason they are not going to rush to raise rates.

Despite the weaker than expected employment numbers, bears still believe inflationary price pressures are a mounting threat to the recovery, and signs of rising wages, particularly for low-skilled jobs, continue to fan the flames on inflation worries.

That will put a spotlight on inflation gauges due this week, with the Consumer Price Index on Wednesday followed by the Producer Price Index on Thursday. There is no major economic data today.

The height of earnings season is behind us with 88% and 86% topping estimates by an average of more than +22%.

The leading sectors have been Consumer Discretionary, Financials, Materials, and Communication Services, while Utilities and Industrials are the only two sectors reporting year-over-year declines.

Earnings this week include Tyson (TYSN) Roblox (RBLX), Palantir (PLTR), Electronic Arts (EA), Disney (DIS), Airbnb (ABNB). Other earnings results today are due from Affirm, Duke Energy, Marriott International, Novavax, Occidental Petroleum, Simon Properties, and Virgin Galactic. Other big names this week will include Compass, Sonos, Tencent, and Wendy’s on Wednesday; Alibaba, Applied Materials, Coinbase, DoorDash, Luminar, and Yeti on Thursday; and Siemens on Friday. Another area of increasing interest this week will be in the crypto space… Bitcoin, Ethereum, Doge, and Maker are all in my daily mix of things I track and trade. What a crazy ride!

Technical analysis

SP500 is close to weekly resistance at 4250. We talked about this number for a few weeks. On an intraday basis, the neutral zone is 4200 – 4265. Middle-strength level within this range – 4232.50, weak levels – 4248.75 and 4216.25.

Break up above 4265, will bring the price to 4281, 4298. If price sustains below 4200, look for 4184 and 4168. Note, mentioned levels should offer support/resistance before you consider entering the trade.

For a look at all of today’s economic events, check out our economic calendar.

Earnings to Watch Next Week: Marriott, Electronic Arts, Alibaba and Walt Disney in Focus

Earnings Calendar For The Week Of May 10

Monday (May 10)

IN THE SPOTLIGHT: MARRIOTT

Marriott International, an American multinational diversified hospitality company, is expected to report its first-quarter earnings of $0.03 per share, which represents a year-over-year decline of over 88% from $0.26 per share seen in the same quarter a year ago.

The U.S. hotel operator’s revenue would slump about 50% to $2.36 billion. However, in the last quarter, the company has delivered an earnings surprise of over 20%.

“Largest hotel brand company globally creates economies of scale, but the spread of COVID-19 will pressure unit growth. With the stock trading near its historical average multiple, we see too wide a risk-reward to justify recommending, with upside/downside driven by how severe and quick business trends return to normal post-COVID-19,” noted Thomas Allen, equity analyst at Morgan Stanley.

Tuesday (May 11)

IN THE SPOTLIGHT: ELECTRONIC ARTS

Electronic Arts, one of the world’s largest video game publishers, is expected to report its fiscal fourth-quarter earnings of $1.04 per share, which represents a year-over-year decline of over 3% from $1.08 per share seen in the same quarter a year ago.

The world’s largest video game publishers would post revenue growth of about 15% to around $1.39 billion. However, in the last four quarters, the company has delivered an earnings surprise of over 500%.

“For the fourth quarter of fiscal 2021, EA expects GAAP revenues of $1.317 billion, cost of revenues to be $302 million, and operating expenses of $837 million. EA anticipates a loss per share of 7 cents for the fourth quarter. Net bookings are expected to be $1.375 billion, which indicates an increase of $75 million over the prior guidance. For fiscal 2021, EA expects revenues of $5.6 billion, cost of revenues to be $1.477 billion, and earnings per share of $2.54,” noted analysts at ZACKS Research.

Wednesday (May 12)

Ticker Company EPS Forecast
WEN Wendy’s $0.15
WIX WIX -$0.68
DT Dynatrace Holdings $0.14
WWW Wolverine World Wide $0.40
LITE Lumentum Holdings Inc $1.42
DOX Amdocs $1.13
JACK Jack In The Box $1.29
GOCO Gocompare.Com $0.00
SONO Sonos Inc -$0.22
PAAS Pan American Silver USA $0.30
MAURY Marui ADR $0.15
TM Toyota Motor $3.67
AEG Aegon $0.17
BRFS BRF $0.02
EBR Centrais Eletricas Brasileiras $0.27
BAYRY Bayer AG PK $0.73
TCEHY Tencent $0.53
DM Dominion Midstream Partners -$0.13
FLO Flowers Foods $0.37

Thursday (May 13)

IN THE SPOTLIGHT: ALIBABA, WALT DISNEY

ALIBABA: China’s Alibaba Group Holding, the largest online and mobile e-commerce company in the world, is expected to report its fiscal fourth-quarter earnings of $1.82 per share, up over 40% from the same quarter a year ago. China’s biggest online commerce company’s revenue to surge more than 70% to $27.7 billion.

“Heightened investments in Taobao Deal and Grocery for user acquisition in less-affluent regions in China, should support long-term growth in core e-commerce business. Merchants’ marketing budgets will continue to shift online given rising reliance on e-commerce and better conversion. Alibaba’s ad resources remain under-monetized,” noted Gary Yu, equity analyst at Morgan Stanley.

“Digitalization trend in China will also sustain AliCloud’s growth potential. Gradual margin expansion will be a long-term profit driver. We see limited near-term catalysts but F22e P/E valuation remains attractive. We also see further downside support from additional disclosure to separate losses from new investments from profitable core e-commerce businesses.”

WALT DISNEY: The world’s leading producers and providers of entertainment and information is expected to report its fiscal second-quarter earnings of $0.27 per share, which represents a year-over-year decline of over 50%. The Chicago, Illinois-based family entertainment company’s revenue would slump over 10% to $ 16.1 billion.

Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long-term content monetization opportunities,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY23.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MAY 13

Ticker Company EPS Forecast
CELH Celsius $0.00
HAE Haemonetics $0.69
BABA Alibaba $11.80
BAM Brookfield Asset Management USA $0.87
TAC TransAlta USA $0.06
UTZ Utz Brands $0.15
VERX Vertex Inc. Cl A $0.05
FTCH Farfetch -$0.28
DIS Walt Disney $0.27
AMAT Applied Materials $1.50
DDS Dillards $1.20
VNET 21Vianet -$0.02
TEF Telefonica $0.16
PBR Petroleo Brasileiro Petrobras $0.12
NICE Nice Systems $1.50
TYOYY Taiyo Yuden ADR $2.09
IX Orix $1.97
SGAMY Sega Sammy ADR -$0.02
SOMLY Secom ADR $0.27
OJIPY Oji ADR $1.57
SBS Companhia De Saneamento Basico $0.15

Friday (May 14)

Ticker Company EPS Forecast
MFG Mizuho Financial $0.06
CIG Companhia Energetica Minas Gerais $0.08
HMC Honda Motor $0.41
SMFG Sumitomo Mitsui Financial $0.12
RDY Drreddys Laboratories $0.52

 

Electronic Arts Stock Moves Higher After The Announcement Of Glu Mobile Deal

Electronic Arts Video 09.02.21.

Electronic Arts Buys Glu Mobile For $2.1 Billion

Shares of Electronic Arts  gained upside momentum and are up by more than 2% during today’s trading session after the company announced that it would buy Glu Mobile for $2.1 billion. Glu Mobile is best-known for its mobile game Kim Kardashian: Hollywood.

Glu Mobile shareholders will receive an all-cash consideration of $12.50 per share which represents at 36% premium to Glu Mobile share price of $9.19 on February, 5.

Electronic Arts expects to finance the transaction with cash on the balance sheet, but it has already announced that it would make a bond offering which is not surprising given the current low interest rate environment.

Shares of Glu Mobile are gaining more than 33% after the announcement of the deal and have already reached the $12.50 level. The transaction will require approvals from Glu Mobile shareholders and regulators. If these approvals are obtained, the transaction will close in the second quarter of this year.

What’s Next For Electronic Arts?

Electronic Arts has recently relesed its quarterly report, beating analyst estimates on revenue and missing them on earnings. The stock was under some pressure after the release of the report as the market got accustomed to strong earnings and encouraging guidance from companies in the digital space.

The purchase of Glu Mobile will increase Electronic Arts’ presence in the mobile game market which is growing rapidly. The 36% premium for Glu Mobile looks reasonable in the age of cheap money and sky-high valuations. Analysts expected that Glu Mobile would report earnings of $0.64 per share in the next year, so Electronic Arts is buying Glu Mobile at less than 20 forward P/E which is cheap.

Not surprisingly, the market loves the deal, and Electronic Arts stock is gaining ground after the announcement of the deal. The stock has good chances to gain additional upside momentum as Glu Mobile fits well into Electronic Arts portfolio while the price of the purchase is reasonable.

For a look at all of today’s economic events, check out our economic calendar.

Electronic Arts Could Break Out in 2021

Nasdaq-100 component Electronic Arts Inc. (EA) rallied to a three-month high on Monday after announcing the acquisition of U.K.-based game developer and publisher Codemasters for $7.98 per-share in a transaction expected to close in the first quarter of 2021.  The rally marks the next step in a recovery from a three-month intermediate correction that erupted after the stock traded within four points of 2018’s all-time high at 151.

Surging Video Game Sales

Video game sales exploded in the first quarter when millions around the world found themselves at home with few pastimes, beyond streaming entertainment. The release of next generation game consoles has put a second fire under sales, with NPD Group noting that consumer spending across video game hardware, content, and accessories rose 35% year-over-year in November, 35% higher than in 2019. Year-to-date spending totaled a remarkable $44.5 billion, or 22% higher than the same time period in 2019.

Electronic Arts expects the deal to enhance the growth of the game maker’s racing franchises. Codemasters now offers a library of racing-themed games that include Formula One, DiRT, DiRT Rally, Grid, and Project Cars while EA’s Need for Speed franchise and Real Racing mobile game should fit nicely into EA SPORTS global franchises. The company also believes that “brands will enable our teams to innovate further, and meaningfully increase the delivery of content and experiences to a growing global audience for racing entertainment”.

Wall Street And Technical Outlook

Wall Street consensus is mixed due to the company’s history of sub-par performance. It’s now rated as a ‘Moderate Buy’ based upon 8 ‘Buy’ and 9 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $124 to a Street-high $165 while the stock opened Monday’s U.S. session about $6 below the median $144 target.

Electronic Arts got bought heavily after the March low, lifting within striking distance of the 2018 high while accumulation surged to an 18-month high. The stock reversed in August and reached the .618 Fibonacci rally retracement before turning higher in November. It’s now trading just 10 points below the prior peak while a buying surge into that level will complete the next stage in a potential cup and handle breakout pattern, with upside potential to 220.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Games Giant Electronic Arts to Acquire Codemasters for $1.2 Billion; Target Price $150

Electronic Arts, one of the world’s largest video game publishers, announced to acquire the UK-based game developer and publisher Codemasters for $1.2 billion and the deal is expected to be completed in the first quarter of next year.

According to the deal, Codemasters’ shareholders will be entitled to receive 604 pence or $7.98 in cash, a premium of more than 13% to the last trading price.

“Video Games’ COVID-19 boost will outlive the pandemic, we believe, with a larger TAM and better digital margins.  This effect boosted stocks globally but the avg >100% YTD gains and 76% re-rating in Pan-European stocks tops the pile,” said Ken Rumph, equity analyst at Jefferies.

“With another 3% post-vaccine increase, we find valuations unsustainable as growth generally slows in 2021. UK stocks were Brexit havens. We cut PDX, FDEV from Buy to Hold; CDR, TM17 from Hold to U/P. Accelerating UBI, KWS remain Buys,” Rumph added.

Electronic Arts’ shares closed 0.83% higher at $135.80 on Friday; the stock is up over 26% so far this year.

Electronic Arts Stock Price Forecast

Seventeen equity analysts forecast the average price in 12 months at $144.28 with a high forecast of $165.00 and a low forecast of $124.00. The average price target represents a 6.24% increase from the last price of $135.80. From those 17 analysts, eight rated “Buy”, nine rated “Hold” and none “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $140 with a high of $150 under a bull-case scenario and $110 under the worst-case scenario. The firm currently has an “Equal-weight” rating on the world’s largest video game publishers’ stock.

Several other analysts have also upgraded their stock outlook. Electronic Arts had its target price cut by investment analysts at Wells Fargo & Company to $145 from $155. The brokerage currently has an “equal weight” rating on the game software company’s stock. MKM Partners boosted their price objective to $160 from $144. Needham & Company LLC boosted their price objective to $165 from $150 and gave the stock a “buy” rating.

In addition, Ascendiant Capital raised the stock price forecast to $167 from $165; Evercore ISI initiated with inline rating and $135 price target; Truist Securities lowered the price objective to $138 from $153 and Benchmark upped the target price to $163.

Analyst Comments

“Shift to digital is a secular tailwind as full game downloads have 20% higher margins than physical disc sales and extra digital content has even higher margins. We forecast full game downloads to increase over the next 5 years and extra digital content to increase as well resulting in gross margin expansion,” said Brian Nowak, equity analyst at Morgan Stanley.

“Room exists for further margin expansion in R&D and Sales and Marketing as EA benefits from the shift to digital and is able to better target its gamer audience,” Nowak added.

Check 3 Video Game Stocks Worth Playing

3 Video Game Stocks Worth Playing

Video game stocks were big winners in the first half of 2020, benefiting from people looking to stay entertained while spending more time at home during the coronavirus pandemic. As infection numbers continue to rise in many parts of the world heading into winter, consumers will likely once again try their hand at gaming to ride out the holidays until COVID-19 vaccines arrive early next year.

“While we wait for a vaccine and eventual economic recovery to unfold, video games are an attractive place to be invested as they benefit from cyclical weakness and stay-at-home orders in the short term,” Deutsch Bank analyst Bryan Kraft told clients, per Business Insider.

Below, we take a look at three video game stocks and turn to technical analysis to identify possible trading opportunities.

Electronic Arts Inc.

With a market capitalization of $37.92 billion, Electronic Arts Inc. (EA) markets, publishes and distributes video games, content, and services for game consoles, PCs, mobile phones, and tablets. Some of the video game publisher’s well-known franchises include “Madden,” “FIFA,” “Battlefield,” “Apex Legends,” “Mass Effect,” “Dragon’s Age,” and “Need for Speed.” Over the holidays, the company plans to release highly-anticipated titles “Medal of Honor: Above & Beyond” and “Mass Effect Legendary Edition.”

Management said it expects third-quarter bookings of $2.35 billion while seeing full-year bookings reach $5.95 billion. From a charting perspective, the share price broke above a descending channel earlier this month. This may give rise to a retest of the 52-week high at $147.36.

Activision Blizzard, Inc.

Activision Blizzard, Inc. (ATVI) develops and distributes content and services on video game consoles, PCs, and mobile devices. The $63.58 billion video game maker owns an impressive franchise portfolio that houses “Call of Duty,” “World of Warcraft,” “Diablo,” “Hearthstone,” “Overwatch,” and “Candy Crush.” Upcoming games in the pipeline include “Overwatch 2” and “Diablo IV.”

The company forecasts full-year revenue of $7.7 billion and earnings of $2.61 per share. Meanwhile, analysts expect sales of $7.8 billion and earnings of $2.59 a share. ATVI shares have also broken out above a descending channel this month that places the bulls firmly in control. Look for upside momentum to push the price back toward its all-time high at $87.73.

Take-Two Interactive Software, Inc.

Take-Two Interactive Software, Inc. (TTWO) develops, publishes, and markets interactive entertainment solutions. The New York-based video game publisher behind franchise hits “Grand Theft Auto” and “NBA 2K” reported fiscal second-quarter net income of $99.3 million, or 86 cents per share. This compares to a net profit of $71.8 million, or 63 cents a share in the year-ago quarter.

Looking ahead, the company said it plans to release 93 games over the next five years, with 47 of those coming from existing franchises. Turning to the charts, the share price has consolidated near the August high over the past week, indicating the stock may continue trending upwards during the coming months.

For a look at today’s earnings schedule, check out our earnings calendar.