Electronic Arts' [EA] share price has gained 18.85% since the start of the year as lockdown saw customers spending more time on their video game consoles. October could continue this run with the release of Star Wars Squadrons and FIFA 2021. For some analysts, the key to EA’s success is its franchises, and more specifically its sports franchises. With the video games industry bigger than ever, we look at how the likes of FIFA and Madden power EA's share price gains.
Fund managers bet on EA’s sports franchises
Mick Dillon and Bertie Thomson, who run Brown Advisory's $1.3bn Global Leaders Strategy Fund, think the gaming giant’s business model makes EA’s share price well worth considering.
According to the fund managers, EA’s share price stands to gain most from its sports franchises, which account for 70% of the company's free-flow. These include Madden NFL, which is the best-selling sports franchise in the US, and ultimate fighting simulation UFC. Every year, a new iteration is released to eager fans, guaranteeing a regular source of income. Dillon credits this for the brand’s "annuity style consumption and high levels of engagement”.
FIFA is one of EA’s biggest franchises. The latest FIFA 2021 clocked up 2.3 million players on EA Play in the first few days of release earlier this month, while last year’s edition has more than 25 million unique players. With the next generation of gaming likely to be dominated by e-sports and cloud gaming, having such valuable franchises could see EA’s share price prosper in the longer-term.
“In soccer, EA has the premium content — can you imagine, in effect, a global version of ESPN, Sky Sports and BT Sports in the video game world?” said Thomson.
EA dominates August video game sales
August was a bumper month for video game sales in the US. Purchases came in 37% higher compared to the same period last year, with the latest iterations of EA’s Madden and UFC leading the pack, according to NPD Group data
“Madden NFL 21 was the best-selling title of August, with double-digit percentage dollar sales growth when compared to the release month of Madden NFL 20,” said NPD analyst Mat Piscatella.
Not only was Madden the best-seller for August, Madden is already the sixth biggest seller this year, while UFC 4 set a "launch month sales record for an Electronic Arts-published UFC title," Piscatella said.
This continues a strong run for EA. In the company’s latest set of results, sales were up 22% compared to the same period last year, totalling $25.9bn. For the 12 months to 30 June, net bookings came in at $5.98bn, a 17% year-over-year increase.
What do the analysts think of EA’s share price?
The strong sales and venerable franchises have gotten analyst attention. Wells Fargo raised their target on EA’s share price to $150 in July, having initiated coverage with an Equal-Weight rating in June.
A little more optimistic is Jefferies analyst Alex Giaimo, who raised his target on EA’s share price from $140 to $155, also in July. Berenberg go even further, having increased their price target from $125 to $165 in August, citing the publisher’s franchises as growth drivers in the medium term.
Alongside FIFA, the company also owns the gaming rights to the Star Wars, The Sims, Battlefield and Need for Speed franchises. Each of these have built-in audiences who will pay for the latest editions on a near-yearly basis. Considering a research report from Newzoo reckons the video game market could hit $159.3bn this year — nearly four times that of the US box office in 2019 — EA looks to be in a strong position.
Of the 29 analysts tracking EA on CNN Money, the stock has a median $155 price target. Hitting this would see a 16.76% upside on EA’s share price (as of 14 October’s close).