What Is Patent 4095665 for? What Is the Price of Electronic Arts Stock Today?
Big news came out of California on Feb. 1 when video game publisher Electronic Arts (EA -4.34%) reported its third-quarter results for the three months ended in December. The company put up dandy growth numbers beyond its portfolio with time spent beyond its games up 20% year over year in financial year 2022. Electronic Arts is firing on all cylinders right now.
However, the stock is down 6% in the by 12 months. This bifurcation between the stock price and business fundamentals provides a great opportunity for investors to pick up some shares of this high-quality stock. Here are four reasons why Electronic Arts (EA) is a no-brainer investment correct now.
Paradigm source: Getty Images.
one. Consequent industry tailwind
EA has put up strong returns over the years -- the stock is upwards 27,000% since going public a trivial over three decades ago. A large reason is the consistent growth in consumer spending on video games. In 1990, right effectually the fourth dimension when EA went public, the video game industry was $31.iv billion worldwide. In 2021, it was estimated that consumers spent $178.iv billion on video games -- and that number is expected to hit $269 billion in 2025.
This consistent growth, forth with EA'south execution and competitive advantages, has led the visitor to grow its annual revenue from less than $500 million in the early 1990s to $6.5 billion over the past 12 months. With nearly $100 billion in new spending expected to come to video games inside the next five years, EA's height-line growth should benefit mightily.
EA Revenue (TTM) information by YCharts
I concern investors might have is EA's focus on console/PC games vs. mobile games. Mobile is the largest and fastest-growing segment within the overall gaming market, which is likely to continue over the next decade. However, while EA has struggled with mobile in the by, it has recently made some potent moves to bolster its mobile portfolio.
EA purchased ii studios final year, Glu Mobile and Playdemic, for $2.4 billion and $1.4 billion, respectively, to bring more than mobile titles and developers under its umbrella. The FIFA Soccer mobile game, which has struggled to proceeds as much popularity every bit the console/PC version, just got a revamp that volition hopefully have it climbing the meridian-grossing charts on mobile over the next few years. Apex Legends, EA's second-about pop game after FIFA Soccer, is putting out a mobile version this twelvemonth.
These initiatives led EA to grow its mobile bookings (the revenue equivalent for video game companies) by 68% year over yr in Q3 to $320 million. Investors should await this potent growth to keep if EA successfully rolls out more than mobile titles in the side by side three to 5 years.
two. Duopoly on sports games
One thing that makes EA such a durable business is the monopoly or duopoly it has on a lot of its sports titles. EA Sports has an sectional license to publish football game simulation video games through 2026, giving Madden NFL a monopoly with its game.
FIFA Soccer, EA's other large sports franchise, does not have an exclusive license to produce a soccer simulation game merely does have licenses from hundreds of leagues around the globe that give it exclusive access to the majority of top soccer players. This has led the franchise to become a virtual monopoly within soccer video games, greatly outselling its competitor Pro Evolution Soccer over the past decade.
EA is more than than just sports with plenty of other major franchises like Noon Legends, the Sims, and Battlefielddriving growth for the company. But a lot of the company's profits exercise come from FIFA Soccer and Madden NFL, two franchises that boss their respective markets and generate highly anticipated revenue streams each year.
iii. Cheap valuation
EA is expecting to generate $1.9 billion in cash flow from operations -- which is the all-time profitability metric for video game companies -- in its fiscal yr that ends in March. This volition be slightly downwardly from last year, but that is because EA had to absorb iv acquisitions this year that added a bunch of onetime expenses. Once these autumn off the income statement next year, EA is on a path to generate well n of $2 billion in operating cash menses annually.
EA has a market cap of $38 billion as of this writing. Assuming the company can generate at least $2 billion in greenbacks flow adjacent fiscal twelvemonth, the stock trades at a forrad price-to-operating cash flow (P/OCF) of 19. For a company with a strong track record of acquirement growth and a dominant position in football and soccer video games, a P/OCF of xix seems like a steal for investors focused on the long term.
4. Strong majuscule returns
Let's wrap upward with EA's increasingly impressive track tape of returning excess cash to shareholders. Over the by 12 months, EA repurchased 9.4 meg shares of its common stock, which helped to reduce the overall corporeality of shares outstanding. Why is this helpful? If yous are a remaining shareholder of EA, your ownership of the business has risen, which is benign equally long as EA'southward fundamentals remain intact (and they take).
EA has consistently reduced its share count over the past five years, bringing its stock outstanding down from around 305 meg to 281 million today. On top of these share repurchases, EA has instituted a quarterly dividend, currently yielding 0.50%. While that isn't huge, if EA continues to generate excess cash menses, management tin can steadily grow this dividend payout over the side by side decade and beyond.
Source: https://www.fool.com/investing/2022/02/12/4-reasons-electronic-arts-is-a-no-brainer-buy/
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