Stay inside and play video games. The World Health Organization said so. It's a strategic investment in community health as the world strives to flatten the curve of COVID-19. In that light, video game makers offer strong financial investment opportunities, and Electronic Arts (EA 0.79%) is at the top of my list.
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It's great to be a gamer now
This just might be the golden age of games. It seems like half the people on earth are in quarantine, staying inside and away from others. Pro sports leagues and the Olympic Games have suspended or postponed their seasons. We can't go out to the ballpark, but we can bring the thrill of the games home.
Millions of video gamers would love an excuse to stay inside and play all day. Now the coronavirus pandemic is fully ablaze around the world, they have the most compelling excuse ever devised since Allan Alcorn digitized ping pong for Atari in 1972. The World Health Organization (WHO) partnered with the gaming industry to create #PlayApartTogether — a promotional campaign that champions social distancing and staying at home to flatten the curve of the pandemic's spread.
"There are more than 9,000 of us at Electronic Arts, and we're part of a global gaming community of nearly 3 billion people," The Electronic Arts Team said collectively on their web site. "During this challenging time, our collective voices and actions can enhance each other's lives, by helping us come together in play while staying at home. Our community is already showing what an amazing force we can be when we come together. So our message is simple: Stay Home. Play Together. At a time where we need to stay physically apart, games can be a source of joy and connection."
We're at a crucial moment in defining outcomes of this pandemic," WHO Ambassador for Global Strategy Ray Chambers said in a statement. "Games industry companies have a global audience [and] more physical distancing plus other measures will help to flatten the curve and save lives."
Score investment returns with EA
Like most of the stock market, EA has been on a downslope. In fact, shares of Electronic Arts were down 13% between Feb. 19 and the end of March.
Yet the game maker is projected to rally from rising sales in its live services business, which generates revenue from in-game purchases and subscriptions. EA saw revenue growth of 27% in Q1 2020.
In the company's Q3 FY20 earnings call Jan. 30, EA COO and CFO Blake Jorgensen painted a bright future for the company.
"Over the last 12 months, we have delivered record live services revenue, live services net bookings and operating cash flow," he said. "Our broad-based business model reduces our dependence on individual titles and enables us to deliver financial results for our shareholders by providing a constant stream of high-quality entertainment for our players. We expect live services to continue to drive growth in fiscal 2021 and for growth to accelerate in fiscal 2022, led by a new [version of the popular game] Battlefield."
Jorgensen also reported that EA net cash from operating activities was $1.104 billion for the quarter and a company-record record of $1.898 billion for the trailing 12 months. EA projected its net revenue for the whole of FY 2020 to be approximately $5.475 billion — approximately $1.325 billion in Q4 alone.
This game will go into overtime
Dr. Anthony Fauci, Director of the National Institute of Allergy and Infectious Diseases, has said the "worst is yet to come" in the United States as the COVID-19 pandemic burns on.
Wall Street analysts like John Freeman of CFRA said the longer people sequester at home during the pandemic to avoid contact with the coronavirus, the more video game publishers like EA are likely to see revenue rewards. He issued a bullish report to clients March 24.
"We see video games as the most compelling, affordable, escapist entertainment option for those stranded at home long term (i.e., weeks/months, not days)," Freeman wrote.
Navigating the stock market is a lot like fighting your way across a fantastical video landscape. There are traps and pitfalls, but there are also hidden gems. Sometimes the gems create an immediate power-up. Other times they bear fruit later if the player holds onto them until the end of the game. I believe EA is one of those. Investors who get in now could see it grow over time.
