Shares of Electronic Arts (EA 1.30%) have climbed 32% since January, with all of that gain coming after the market crash in March over COVID-19. EA is known for classic sports franchises like FIFA and Madden, and other popular titles, such as The Sims and Apex Legends.
Strong engagement levels in these games caused a spike in revenue and earnings in the fiscal first quarter ending in June, which has sent the stock soaring. But how will EA fare once a vaccine for COVID-19 is available? While we can't know for sure, management provided some clues during the last conference call.
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Strong engagement has continued into the current quarter
EA makes the bulk of its money from live services, or players spending money to buy extra content while playing. Management characterized the engagement levels during the last quarter as "extraordinary." That drove revenue from live services up 61% year over year to $1.1 billion.
But what if those players stop playing games to get some sunshine? During the fiscal first-quarter conference call, CEO Andrew Wilson noted EA is seeing strong engagement continue into the fiscal second quarter. "Our EA SPORTS live services are acting as social networks for sports fans around the world, and the strength of those connections will grow as real sports seasons return," Wilson said.
A new engagement plateau?
Investors should keep expectations in check, because there is the possibility that a prolonged recession could pressure EA's revenue growth in the coming quarters. But on the flip side, the company just welcomed "tens of millions" of new players to its games during the pandemic, and that gives EA a large audience to launch new games into and drive continued growth in the business.
