Electronic Arts (EA 1.30%) is enjoying some nice tailwinds. Its video games are seeing record high engagement, and the gaming sector overall is reporting record sales as consumers flock to digital entertainment during the pandemic. The company's strong release slate, full of new installments of popular franchises like Madden, is driving growth.

Here's why investors should consider Electronic Arts.

Happy people playing video games

Image source: Getty Images.

Recent revenue momentum is strong

During the fiscal 2021 first quarter (ended June 30), net revenue increased 21% to $1.46 billion. During the investor call, COO and CFO Blake Jorgensen said the company added "tens of millions of new players" to its network and launched new releases during the quarter. As a result, Electronic Arts raised its full-year net revenue and net bookings guidance to $5.625 billion and $5.950 billion, respectively.

Growth accelerated in the new fiscal year thanks to increased engagement with its video games as consumers spent more time at home during the quarter. As the variety of live entertainment options such as live sports and concerts remain limited due to COVID-19, people will look to video games as an alternative. Jorgensen noted in the first-quarter earnings release, "Our Stay Home, Play Together initiatives have been a strong tailwind for the business, as players look for safe and social entertainment in these difficult times."

Record high engagement and video game sales

Even as COVID-19 restrictions loosen across the U.S., people are still spending their dollars on video games and related products. There are secular trends that favor Electronic Arts and the rest of the industry. "First, social interactions in our world are moving from physical to digital," CEO Andrew Wilson noted on the earnings call. "And second, the consumption of sports and entertainment is moving from linear to interactive."

And Aug. 2020 was another record-breaking month for video game hardware, software, and accessories sales. Overall video game sales increased 37% to $3.3 billion that month, following increases of 32% in July and 26% in June, according to market research group NPD.

That impressive growth over the last few months extends a streak that began in March, but popular new releases from EA, including Madden NFL 21 and UFC 4, topped the charts in August, driving demand that month.

The Madden franchise continues to be a winner with player acquisition increasing 140% year over year in the fiscal first quarter. "Madden NFL 21 debuts as the No. 6 best-selling game year to date," NPD analyst Mat Piscatella told VentureBeat. "Madden NFL is the best-selling sports (and third best-selling overall) video game franchise in U.S. history."

Strong franchises and mobile will fuel growth long term

In October, Electronic Arts is releasing FIFA 21 and NHL 21. For the remainder of 2020, the company's performance will likely be buoyed by both the new titles and demand from gamers. "We saw extraordinary levels of player engagement through the first quarter, far higher than we even ever expected or had forecast in May," Jorgensen said on the first-quarter earnings call. "And it proved more resilient than we had expected."

Looking ahead, Electronic Arts' mobile segment will play an increasingly important role. "We're continuing to invest in our growth drivers, and in particular, we're increasing the number of mobile tiles we have in development," said Jorgensen during the latest earnings call. Mobile has been performing well with bookings up 32% in the first quarter, powered by a strong showing from Star Wars: Galaxy of Heroes. With mobile games making up one of the largest and fastest-growing categories in the industry, Electronic Arts is tapping into this opportunity, and it released over 50 updates to its mobile games during the first quarter.

While the video game company is well positioned with top-selling products, management is aware of the threat posed by economic uncertainty in the wake of the pandemic. But even with the volatility, Jorgensen said he is confident the company's "ability to deliver high quality, AAA titles for our players, combined with the incredible success of our ongoing live services and increased reach across platforms and geographies, enable us to continue to deliver for players and investors."