Can Battlefield, Madden, and FIFA Continue to Propel EA to New Heights?

Fresh off a mixed earnings report that noted significant advances in digital content across several popular franchises, Electronic Arts has continued its upward march over the past year. Does EA have what it takes to outperform industry rivals, or will Activision Blizzard freeze its red-hot ascent?

Feb 1, 2014 at 9:15AM

This past week Electronic Arts (NASDAQ:EA) released its fiscal Q3 2014 results amid growing optimism for the future of the once beleaguered video game publisher. With a very strong following for hit franchises such as Battlefield, FIFA, and Madden, just to name a few, translating to swift gains in digital sales, the company is proving the relevance of its business in an increasingly digital world. But with shares racing skyward, can Wall Street's 'need for speed' for earnings growth be satiated to keep shares moving higher?

Console refresh or not, EA has staying power
By now we all know that the new console cycle, with the recently releases of the Playstation 4 and Xbox ONE, will temporarily put a crimp in EA's top-line growth. With limited titles out for the new systems as of now and less consumer interest in the older titles geared toward the previous console generation, it's no surprise that companies like EA and Activision Blizzard (NASDAQ: ATVI) may struggle slightly in the short run. Perhaps that's why Wall Street didn't even bat an eyelash at EA's greater than 7% fall in annual GAAP revenue from the prior year.

Instead, long-term investors should focus more on the strength of the company's gaming franchises for clues to the business' ultimate potential. Not only EA was the number one publisher on the new consoles in the western world as further evidenced by their 35% share on both PS4 and Xbox ONE in the third quarter, but its most popular titles also propelled digital revenue, arguably the future of the gaming industry, to new heights. Both of these factors show the power behind this company's brands.  

But is now a good time to buy?
EA's popular franchises give it the so-called moat it needs to protect and even expand its future cash flows. Per some estimates on a revenue basis, the Madden NFL franchise alone, which was originally released in 1988 when this author was in grade school, had sold more than 85 million copies through 2010. This obviously doesn't even include the versions from the proceeding years. It's pretty easy to see this franchise is still going strong, and it's not the only one for EA.

However, prospective investors need to consider the stock's current price before they press the buy button. One quick glance at the chart below shows that EA seems a little pricey on both a historical and comparative basis to its leading peer, Activision.

EA Price to Free Cash Flow (Annual) Chart

EA Price to Free Cash Flow (Annual) data by YCharts

As with many stocks it comes down to a matter of growth potential relative to its current price. Is EA priced fairly right now or should investors wait for a more attractive point to buy shares? Listen to what the Consumer Goods team has to say in the following video and let your own voice be heard in the comments section below.

EA is a good business, but it's not even on the same playing field as this next one...
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Mark Reeth has no position in any stocks mentioned. Mark Reeth has no position in any stocks mentioned. Michael Finarelli owns shares of Activision Blizzard. Sean O'Reilly has no position in any stocks mentioned. Sean O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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