Electronic Arts' (EA -3.06%) highly anticipated November release of Battlefield 2042, a longtime competitor to Activision Blizzard's Call of Duty franchise, fell short of sales expectations in the holiday season. But outstanding performance from the rest of EA's portfolio drove record results in revenue and profitability during the fiscal 2022 third quarter.

The most impressive number from the earnings report was that players are spending nearly 20% more time in EA's games during fiscal 2022, which ends in March, than they did during the previous year when the pandemic sent demand for video games through the roof. This trend could lift the stock to new highs this year. 

Adult playing video games with a child.

Image source: Getty Images.

Growing faster than peers

In November, EA said it had more than 500 million unique player accounts across its games. In the latest earnings report, that number has grown to 540 million. Actual monthly active users, which represent the most deeply engaged players, stood at more than 180 million in the quarter. 

Monthly active users for Apex Legends were up over 30% year over year, putting this popular esports title on pace to reach $1 billion in bookings for the full fiscal year. 

It's evident EA has very strong momentum right now with its diversified portfolio spanning best-selling sports titles to other favorites such as The Sims, Apex, and an expanding portfolio of mobile games with last year's $2.1 billion acquisition of Glu Mobile. 

In terms of growth, EA is starting to pick up the pace at the top line compared to its peers. On a trailing-12-month basis, EA's revenue grew 32% year over year to reach $6.5 billion, and management expects more growth in fiscal 2023.

EA Revenue (TTM) Chart

Data by YCharts.

The weak performance of Battlefield 2042 was a disappointment, but it made up less than 10% of EA's total revenue, and it's expected to make up less than 5% next year. And the limited effect of that title on EA's record quarter validates management's strategy to build a diversified portfolio of games across genres and platforms.

The stock is poised for new highs

The stock's valuation looks attractive after such an upbeat quarter and outlook for the year ahead. After growing bookings 22% on a trailing-12-month basis, and with management guiding for "strong growth" in fiscal 2023, the stock's price-to-free cash flow multiple of 24 is fair for a growing video game business and consistent with EA's historical trading range. 

EA Price to Free Cash Flow Chart

Data by YCharts.

Growth from lucrative digital revenue streams, such as when players spend money collecting player cards in Madden's Ultimate Team feature, is fueling strong growth where it matters. Operating cash flow increased 36% year over year in the quarter to reach $1.5 billion.  

EA has plenty of new releases planned to drive more growth. It just signed an agreement with Walt Disney's Lucasfilm to create new experiences in the Star Wars universe. It also has a mobile version of Apex Legends on the way as well as unannounced projects across its top studios. 

With improving cash flow, a regular quarterly dividend of $0.17 per share, and numerous growth opportunities ahead, Electronic Arts stock would make a great addition to a diversified portfolio.