What happened
Electronics Arts (EA -0.19%) stock closed out the first six months of 2018 up 34.2%, according to data from S&P Global Market Intelligence . Most of the company's valuation gains stemmed from the two strong quarterly reports it released in the first half of the year.
The video game publisher published third-quarter earnings results on Jan. 30 and fourth-quarter results on May 8, with performance for both periods generally coming in ahead of expectations and spurring substantial stock-price rallies.
Image source: Electronic Arts.
So what
EA stock climbed in the lead up to the company's third-quarter report on Jan. 30 and then jumped following the publishing of results. Both sales and earnings for the period actually came in slightly below the average analyst estimate, but the underperformance wasn't as bad as some had feared.
A rough launch and suspension of in-game monetization for the company's Star Wars: Battlefront II was expected to weigh on performance, but strong in-game content sales for other titles smoothed out the results. Some of these gains were ceded amid broader stock market sell-offs in February, but the company's share price rebounded.
The stock's next big gains came courtesy of its fourth-quarter earnings release on May 8. Sales and earnings came in ahead of the market's expectations for the period, prompting another steep share-price increase. EA stock also posted gains during the Electronic Entertainment Expo that took place from June 12 through June 14, indicating that investors were generally pleased with the company's showing at the event.
Now what
EA's strong stock performance has continued in July.
The publisher normally gets a significant sales boost from its FIFA soccer franchise in World Cup years, and in-game content sales have generally been on a tear. As a result, the company is likely to see strong performance in its next two reported quarters.
As an owner of valuable franchises and a leading player in a video gamer industry that's seeing a lot of favorable tailwinds, Electronic Arts has a promising long-term outlook. That said, there have also been some less than favorable developments at the company in recent years. EA's Mass Effect, Dead Space, and Titanfall series were mishandled, and its games based on Disney's Star Wars franchise have fallen short of expectations on some key fronts. The video game publisher recently canceled a Star Wars game that had been in development for several years and closed the studio that was working on it.
Large games publishers like Electronic Arts and Activision Blizzard are benefiting from their customer bases' voracious appetite for video game content and should still have plenty of room for growth. On the other hand, both companies must contend with the massive popularity of less expensive games like Tencent's Fortnite and Player Unknown's Battlegrounds -- and it's possible they will need to improve the value propositions of their respective offerings.
