Electronic Arts (NASDAQ:EA) stock popped to a new high last week after the company reported fantastic fourth-quarter revenue and profits.
The video game company has found a way to use licensing and partnerships to wring the most money out of an industry that just a few years ago was thought to be dying. But with new technologies on the horizon that can make the gaming experience even more immersive, Electronic Arts may still have plenty of runway ahead of it.
In this segment from the Motley Fool Money radio show, Chris Hill, Simon Erickson, and Ron Gross talk about Electronic Arts' solid performance in the recent quarter and why the company has so much growth potential ahead of it. But with its stock at an all-time high, does that make it too pricey for investors?
A full transcript follows the video.
This podcast was recorded on May 13, 2016.
Chris Hill: Disney (NYSE:DIS) might have struggled with video games, but Electronic Arts is hitting an all-time high this week after fourth-quarter profits and revenue came in higher than expected. They are crushing it over there, Simon.
Simon Erickson: Yeah, and Chris, Jason just said, look at video game makers that can license Disney's brands. Electronic Arts is doing exactly that. They just came out with a Madden NFL 17. Chris, I don't know if you saw, Gronkowski is on the cover.
Hill: I'm worried. Isn't it that, historically, the football player on the cover of the EA NFL game gets injured that season?
Erickson: This could be a bad sign for you, then.
Hill: I don't like this at all.
Erickson: But EA, after Disney sets apart the Infinity video game group from being in-house, they're going to license it out to others. Of course, Electronic Arts has done that. They have the Star Wars franchise from Disney. That's really good news for them, too. This is a company that's getting it done. Eighteen percent growth in their digital revenue, which is distributed online, the actual games themselves. They're picking up, like we said, the Star Wars franchise. They have a lot of growth ahead of them.
Hill: Do you like EA at this price? It's an all-time high, I'm wondering how spicy it looks.
Erickson: Video gaming is a good industry. There's a lot of growth in this, and you actually get pretty attractive margins. So I think the question I should answer that with is, how much bigger is this going to get, as it becomes more immersive and virtual reality starts to catch on? I think there could still be more upside.
Ron Gross: And I do like the way the industry is going in terms of a recurring revenue model instead of these big hits here and there. That makes me much happier to own a stock over long periods of time, rather than thinking about too high, too low.