Note: Electronic Arts' fiscal year ends on March 31
However, the decrease in EA stock has been far from consistent. Returns for the stock were -8% in 2021, -7% in 2022, and 12% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that EA underperformed the S&P in 2021 and 2023.
Electronic Arts has its own racing franchise – Need For Speed – and the company has been successful with its live services offerings and global reach. Under Electronic Arts, Codemasters' racing games will likely see an expansion of live services over the coming years. The acquisition was an all-cash deal.
Electronic Arts also acquired another gaming company — Glu Mobile, for $2.1 billion. With Glu, Electronic Arts now has access to popular female-centric games, including Kim Kardashian: Hollywood and Covet Fashion, along with MLB Tap Sports Baseball, the addition of another sport to the company's existing portfolio that includes FIFA and Madden NFL, among others. The Glu acquisition will strengthen the company's mobile business, which currently accounts for just 15% of the company's total sales.
Below are key drivers of value that present opportunities for upside or downside to the current Trefis price estimate for Electronic Arts's stock.
In the changing video game landscape, EA has been focusing on downloadable content, subscriptions, and other supplementary services to generate income. As product costs, warehousing and distribution costs, and manufacturing royalties are not applicable to these streams, they also have higher margins. We expect EA's Console revenue to see a strong growth to the north of $5.5 billion over the course of our forecast period, compared to $4.6 billion in fiscal 2024. However, if this figure increases to $7.5 billion, driven by a stronger adoption of in-game services, increased breadth of these services, and improved monetization, there can be over a 15% upside to our price estimate for EA.
Electronic Arts is an international developer, marketer, publisher, and distributor of games for video game consoles, personal computers, mobile phones, and the Internet. Currently, EA's most successful products are sports games published under its EA Sports label (such as FIFA, Madden NFL, and NHL), games based on popular movies such as Harry Potter, and games from long-running franchises such as Need for Speed and The Sims.
Product revenues are primarily generated from the sale of video games. EA also generates revenues from downloadable content, subscriptions, and other services such as in-game advertising.
Over the past few years, the revenue from Mobile platform has seen faster growth compared to the company's Console segment. Mobile gaming is seeing increased demand across the globe, with an increase in time spent on smartphones. That said, hardcore gamers usually prefer playing on consoles, which is the largest segment for Electronic Arts in terms of revenues. Therefore, for EA, both these revenue streams are important.
The video game landscape has changed significantly over the last few years. Over the last decade, the advent of smartphones and tablets has increased the ease of access to games, leading to the rise of casual gaming. Gamers are no longer restricted to consoles and high-end PCs but can use their smartphones to play games on the go. As a result of this revolution, video game companies have had to change their business model to adapt to the evolving market.
Another factor contributing to the sales slump was console fatigue, as the seventh-generation consoles had been around for eight years until the Xbox One and PlayStation 4 were launched in 2013. The next-generation launches refreshed the console cycle, and the initial response to the consoles was strong, though software sales initially lagged behind hardware sales. The newer generation of consoles was launched in December 2020.
The discrepancy between hardware and software sales could be due to a natural lag; gamers might prefer to buy the console first and then move on to buying software. Another factor for the lagging software sales might be the shift toward casual games; core gamers are still buying consoles and software, but casual gamers might not favor the expensive eighth-generation consoles over the smartphone and tablet platforms.
Currently, each Xbox One console sold is accompanied by nearly three games on average. If the difference between software and hardware sales is indeed due to a natural lag, then we might see this figure increase. However, a decline in the games-to-consoles ratio would indicate that casual gaming is eating into the console market.
Although the competitive video gaming sector has been there for a long time, it is just recently that the viewership and participation have picked up in the last five years. Moreover, the prize money and lucrative awards are attracting more professionals to this sector.
