EA Sports: (NASDAQ:EA)
Electronic Arts Inc. develops, markets, publishes, and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide. The company develops and markets games and services across various genres, such as sports, first-person shooter, action, role-playing, and simulation primarily under the Battlefield, The Sims, Apex Legends, Anthem, Need for Speed, and Plants v. Zombies brands; and license games, including FIFA, Madden NFL, and Star Wars brands. It also provides advertising services; licenses its games to third parties to distribute and host its games. The company markets and sells its games and services through digital distribution channels, as well as through retail channels, such as mass-market retailers, electronics specialty stores, and game software specialty stores. Electronic Arts Inc. was founded in 1982 and is headquartered in Redwood City, California.
Below is a breakdown of the digital bookings by platform:
EA has a plethora of launches slated for FY20. In Q2, the company is launching FIFA 20, Madden NFL 20, and Sea of Solitude all on Console and PC, and NHL 20 on console. In Q3, they are launching Need for Speed, Plants vs. Zombies, and Star Wars Jedi: Fallen Order on both console and PC, and NBA Live 20 on console.
Second Quarter Performance
Digital net bookings continue to grow, up 5% from a year prior, and now representing 76% of all bookings. Further, the Sims 4 expansion packs and game back downloads increased 55% from a year prior, showing strong growth in the in-game purchase segment. EA repurchased 3.2 million shares for $305 million during the quarter, bringing the total to 11.9 million shares for $1.197 billion during the trailing twelve months.
In 2016, the National Association of Collegiate Esports (NACE) had six members. Today, that number is more than 120, including large universities like the University of Oklahoma and the University of Missouri. Offering students the opportunity to participate in an esports programs has boosted enrollment, which is a big draw for colleges to begin the initiative of an eSports team.
For the first time ever, eSports revenues will surpass $1,000,000,000 in 2019. This represents over 26% Y.o.Y growth. The highest-grossing individual esports revenue stream worldwide is sponsorship, generating $456.7 million in 2019.
This growth in the global eSports market, illustrated by the graph above, shows a 9% compound annual growth rate. This is extremely strong, and is a vote of confidence the market is strong, and still rapidly expanding.
Financially, the company is in a strong position. In their latest 10-Q, filed August 6th, they showed an increase in revenues for the three months ended June 30th, primarily driven by service revenues. Further, from a years prior, operating expenses also fell, down nearly 5% as a percentage of revenue. Operating income is also up over 38% from a year’s prior. Net income for the three months ended June 30th in 2019 was $1,421,000,000, up from $293,000,000 a year’s prior. This is a result of a benefit from income taxes, that was added after tax in the amount of $985,000,000. Without that, income before the benefit was up to $436,000,000 for the quarter, up from $319,000,000 a year prior. This represents over a 36% increase. The company has very little debt, their quick and current ratio are both 3.5, representing a strong balance sheet and a short-term ability to cover their liabilities. Their debt/Equity ratio is a mere 0.15, showing responsible borrowing and a long-term ability to pay their debts.
EA is strong growth opportunity as colleges and the broader eSports markets continue to grow. With a dominant market position, a strong balance sheet, and growing financials, EA should be a staple in your portfolio.