The video game industry is slowing after a meteoric boom at the start of the pandemic, with some game makers reporting weaker sales and a declining user base this year, explains Mike Cintolo, editor of Cabot Top Ten Trader.
But video game publisher Electronic Arts (EA) has bucked this trend and is still releasing new content across its most popular franchises (including The Sims, EA Sports and Apex Legends) while setting records for app-related sales — and that’s made it a potential acquisition target, which is a big reason for the recent strength (more on that in a minute).
In its fiscal fourth quarter, net bookings (the company’s main metric) of $1.8 billion rose 18% in the quarter (up 21% for the fiscal year), while per-share earnings of $1.46 lifted 19%. The record results came on the back of 16% player network growth in Q4; user engagement, moreover, remained elevated (in contrast to some of its peers) as EA boasted more than 580 million unique active accounts.
Encouragingly, an increasing portion of that engagement is subscription-based, which the company said continues to “super-charge” growth. Profits were also driven by a higher rate of direct sales and seasonal subscriptions, which EA sees increasing with the launch of a new mobile service for the popular game Apex Legends.
Overall mobile segment net bookings surpassed $1 billion for the first time ever in the March quarter. Going forward, the company plans to release several upgrades of its most popular franchises in fiscal 2023, including Need for Speed, Dead Space, Star Wars and Lord of the Rings.
All of that is to the good, and the firm has reportedly been in talks with some huge players — Comcast (CMCSA), Apple (AAPL), Amazon (AMZN), Disney (DIS) — for a potential merger or buyout following Microsoft’s takeover of Activision last year. Of course, the buyout might not happen, but this is a good business and the M&A chatter should keep buyers interested.
Technically, EA hit a major peak around the beginning of 2021 as the shine wore off the pandemic-induced video game craze. The stock spent most of last year locked in a downward-sloping range between roughly $125 and $145 before dropping under the floor to $120 in late November.
Shares did fall to a lower low a few weeks back, but the relative performance line did not, and now EA has enjoyed three big weekly gains on great volume. There’s some resistance in the $140 area, so if you want in, aim for dips of a few points.