Electronic Arts (EA 0.83%) reported strong earnings results in early May, and the stock has been on a tear ever since. After underperforming the Nasdaq Composite for most of the past year, shares are up almost 19% over the last month.
Even after that sharp rise, the stock still looks attractive based on one growth opportunity.
EA is building momentum in mobile gaming
EA has 580 million unique player accounts spread across a strong lineup of titles on PC and console, including FIFA, Apex Legends, and The Sims. EA generated 84% of its $7.5 billion in bookings (a non-GAAP measure of revenue) in its most recent fiscal year from PC and console games.
Image source: Getty Images.
Mobile is an attractive growth market that EA has been missing out on. It might seem surprising, but spending on mobile games is the largest and fastest-growing category of the video game industry. Data from Statista shows the global value from mobile games reached $131 billion in 2021 and is expected to climb to $173 billion by 2026. The mobile gaming market has grown tremendously from just $8 billion in 2011.
The combination of acquisitions and increased performance of existing titles has pushed EA's mobile bookings up from $712 million to nearly $1.2 billion over the last two years. Last year's 52% increase in mobile was due to the acquisition of Glu Mobile, the maker of MLB Tap Sports Baseball and Kim Kardashian: Hollywood, for $2.1 billion.
Image source: Electronic Arts.
EA is not acquiring its way to growth, which generally is not as ideal as organic investment from the company itself. In fiscal 2021, EA's mobile bookings were already trending up, advancing 10% over the prior year.
EA is investing behind a strong lineup of titles that should keep mobile bookings growing. On that note, FIFA Mobile just reported a record quarter, with unique players up 80% year over year, but this franchise could grow for many years, given there are 3.5 billion soccer fans worldwide.
EA stock is poised to break out sooner or later
Management's fiscal 2023 guidance calls for total bookings to grow between 5% to 8% over last year. The growth is expected to come from mobile and new releases in the second half of the fiscal year. One of these big releases is a mobile version of Apex Legends and the launch of Lord of the Rings: Heroes of Middle-earth, which is entering regional testing this summer ahead of its release.
Analysts currently expect EA to report adjusted earnings per share of $7.20 in fiscal 2023 before improving to $8.16 in fiscal 2024. Over the next five years, the consensus estimate has EA growing earnings at an annualized rate of 13%.
The stock has returned only 21% over the last five years, with lots of ups and downs in between. However, the stock has underperformed the actual growth of the business, with revenue up 39% over that time. As mobile bookings start to contribute more to EA's growth, it's only a matter of time before the stock breaks out to a new high and moves higher over the long term. Now might be a good time to consider buying before investors wake up to the opportunity here.
