Is Electronic Arts Suddenly A Safe Haven?

May 14, 2022

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Online game maker Digital Arts (NASDAQ:) reported their fiscal earnings this week, and so they greater than justified the stubbornness seen of their shares in current weeks. Whereas fairness markets have offered off relentlessly throughout what is popping out to be one of many worst begins to a 12 months in residing reminiscence, shares of EA are ‘solely’ down about 20% from final 12 months’s excessive.

If this was final 12 months, such efficiency could be catastrophic, however within the context of 2022 it’s fairly enticing actually. The S&P 500 index is down about the identical, whereas the tech-heavy NASDAQ index is down near 30% from its all time excessive. Taking a look at particular person names, Netflix (NASDAQ:) shares are down 75%, Fb (NASDAQ:) are down 50%, and Amazon (NASDAQ:) are down greater than 40%. You’d be forgiven for pondering that perhaps, simply perhaps, online game shares are changing gold as the normal protected haven for fairness traders.

Let’s check out their numbers and see what’s behind the bull’s stubbornness.

Strong Report

For starters, the corporate’s EPS was a wholesome $0.80 and nicely forward of what analysts have been anticipating. Income for the quarter was slightly delicate on the consensus, however nonetheless up greater than 17% on the 12 months. Traders additionally realized that the EA participant community grew 16% 12 months on 12 months to greater than 580 million distinctive lively accounts. These are admirable development numbers, significantly as trade numbers haven’t been nice this 12 months to this point.

Whereas online game gross sales boomed throughout COVID, due to extra individuals than ever earlier than being locked up at residence, they’ve been trending down since late final 12 months. Contemporary numbers this week confirmed that client videogame spending fell 8% within the first quarter in comparison with the identical interval in 2021, an “indicator of the comedown from mid-pandemic highs as some client {dollars} discovered their manner again to different experiences, and the trade continued to battle to get new consoles into patrons’ palms.”

So when EA continues to be in a position to push out a report like this, it’s straightforward to see why Wall Avenue nonetheless very a lot likes the reduce of their jib. Andrew Wilson, CEO of EA, spoke bullishly to the longer term, saying that “FY22 was a document 12 months, with a whole bunch of hundreds of thousands of gamers around the globe becoming a member of in our video games to play, watch, and create with each other. With superb video games, constructed round highly effective IP, made by extremely gifted groups, and excellent engagement in our stay providers, FY23 is ready to be a 12 months of innovation and development for Digital Arts.”

The corporate’s CFO, Chris Suh, echoed the sentiment when he remarked that “we completed the 12 months with one other robust quarter of income and revenue development, pushed by our stay providers enterprise which was 85% of our internet bookings in This fall. Now we have a powerful basis of deeply engaged gamers, wealthy IP, and a resilient enterprise mannequin, which we’ll proceed to put money into to ship development in FY23 and past.”

Getting Concerned

Along with all of this, administration gave a bullish sign to traders this week once they upped the corporate’s dividend by 12%. This is among the most bullish alerts traders can get, and tells us that administration may be very assured concerning the firm’s prospects within the months forward. The robust report and dividend hike didn’t go unnoticed both. MoffettNathanson upgraded their score on EA inventory to Purchase from Impartial, and set its worth goal to $141. From the $120 that shares closed at on Thursday, this nonetheless suggests an upside of some 16% available. The group over at Jefferies reiterated their Purchase score, whereas noting their shock at a rise in full-year steerage amid the sector pressures proper now.

Wedbush saved its Outperform score as nicely, however trimmed its goal to $164. The quarter was consistent with his expectations, analyst Michael Pachter says, however “we anticipate development within the foreseeable future pushed by value self-discipline, digital gross sales development, a number of key franchises, and a number of current acquisitions.” Credit score Suisse made an identical transfer, trimming its worth goal to $162, suggesting there’s 30% upside available from present ranges.

It’s a troublesome time to be an fairness investor proper now, however EA may simply be one of many higher locations to park your money proper now.

Electronic Arts Inc. Stock Chart

Digital Arts Inc. Inventory Chart

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