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What's the Opportunity Behind EA?

There hasn't been much going right for Electronic Arts  (Nasdaq: EA  ) in the past year. The gaming company is down 50% as recent big bets like Star Wars: The Old Republic haven't lived up to expectations.

Yet, trading near five-year lows and with some remaining great franchises -- especially its sports titles -- there's no doubt there's life left in the company. I created a premium report on EA to help guide investors on whether the company has what it takes to get back up off the mat. 

Below is an excerpt from the report, laying out the company's opportunity. We hope you enjoy it.  

The opportunity
"What you're seeing is a strategic balance that none of our peers can duplicate," CEO John Riccitiello said during the company's call to discuss the company's first fiscal quarter of 2013. "We have strength in a dozen great brands, strength in strong market positions across multiple channels and business models."

He's certainly right about the brand. From the EA Sports line that has spawned struck licensing deals with leagues to roll out annual FIFA and Madden installments, to the battle-tested Battlefront and Medal of Honor franchises, EA covers plenty of ground. There's also the Need for Speed racing franchise and role-playing pioneer The Sims. The acquisitions over the years of Pogo, PopCap, and Playfish have given the company plenty of skin in the casual and social gaming realms.

Suggesting that this diverse lineup has helped the company out over the years -- meeting or exceeding guidance for 11 consecutive quarters through the end of its second quarter of fiscal 2012 -- is fair. EA's hits have been able to offset the misses.

Digital domain
By EA's own estimates, the Western world's video game market has actually grown at a 2% compounded annual growth rate from calendar year 2009 through 2011. The estimation may be at odds with the more bearish metrics that industry tracker NPD Group cranks out on a monthly basis, but EA isn't limiting itself to physical retailers. EA arrives at 2% as a combination of a 7% annualized decline on the console end and a more robust 30% annualized spike in digital.

It's clear that digital is the future, and while the gradual demise of packaged goods may be bad news for GameStop  (NYSE: GME  ) , Best Buy  (NYSE: BBY  ) , and other retailers of physical games, EA's in the sweet spot of being the content creator that can now cut through a layer of distribution fat by dealing directly with consumers.

It won't be easy.

The same benefits of digital distribution that have drawn EA to carve out digital versions of its flagship brands and to acquire companies in this space apply to all players. The playing field is level, and that means that an App Store sensation can just as easily come out from a major game maker as it can from a head-turning upstart.

Looking for more guidance
That was just a sample of our new premium report on EA. If you're weighing whether the company is a buy or sell, the report is an essential resource for investors seeking more information on the company. Not only that, but the report comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. To get started, simply click here now

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10/26/2016 4:00 PM
EA $82.58 Down -0.36 -0.43%
Electronic Arts CAPS Rating: ***