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.