Electronic Arts Inc. has been an absolute rock star in the video game world. As a result, its share price has soared, and it is currently trading with a P/E of around 20. But that doesn’t mean the upside is capped. On the contrary, given the strong line-up of upcoming games, and a buyout rumor, the stock should be on the radar as a strong investment opportunity.
Over the past few years, the video game industry underwent a major change. Companies became increasingly focused on “blockbuster games.” These had huge budgets, yet slim margins. As such, only existing players with big brands, and an even bigger cash flow, started to dominate. This trend will only accelerate going forward.
Electronic Arts Inc.’s Enviable Portfolio
In this regard, Electronic Arts Inc. ‘s portfolio is among the very best. At this year’s E3 (the leading gaming conference), its FIFA 2016, Need for Speed and Star Wars Battlefront, all collected top honours in their respective genres.
Electronic Arts’ sports franchises are immensely popular. Frankly, EA could survive solely on the sales of its mega-hit soccer games. Q4 numbers validate this point. Close to 18 million matches of FIFA 2015 were played in just one single day of Q4 of last year. FIFA 2016 released last week and is forecast to do even better.
And not just sports, Electronic Arts also has strong mobile franchises that include SimCity BuildIt, Madden NFL mobile and a Simpsons game. The 2011 acquisition of PopCap brought them the successful Plants vs. Zombies. EA expanded Plants vs. Zombies into a brand, which went on to become a much sought after multimedia franchise for consoles, mobile devices and PCs.
Core Acquisition Strategy has been Successful
Electronic Arts Inc. has also been very successful with core acquisitions. Bioware is a case in point. It produced two new critically and commercially acclaimed brands – Dragon Age and Mass Effect. The Star Wars brand was also extended in to the successful Massively Multi-player Role-playing Game (MMORPG), Star Wars : The Old Republic.
Electronic Arts has recently been in news over rumors of a pending buyout of Polish video game company, CD Projekt SA. According to industry website DSOGaming, an employee from CD Projekt has revealed that EA is in secret talks to buy out the makers of the recent hit The Witcher 3.
Regardless of whether those rumors materialize, Electronic Arts Inc. probably is the best company in the sector. A strong bouquet of brands and licenses, console, mobile, PC, and an upcoming Star Wars game to be unveiled around the time of the movie release, all point to strong growth, both for the company and the stock.