Shares of video game publisher Electronics Arts (NYSE:EA) have weathered the storm of demand shock in the video game industry. Video games are a discretionary item and rising inflation is causing consumers to pull back on their discretionary spending. Indications of the weakness were indicated by the accompanying warning from the top graphics chip maker NVIDIA (NASDAQ: NVDA). Video gaming is highly interactive and offers great entertainment value for the money. The company believes that obscuring macroeconomic and geopolitical headwinds are driving more people to escape video games, as evidenced by the 20% growth in live services bookings, which accounts for 70% of total bookings. The sports video game franchises ensure consistent profits as they release new versions every year. The EA player gaming network has amassed nearly 600 million members to date as it builds its own customer ecosystem to bolster its moat. Is it enough for the company to withstand the downturn in video gaming?
Revolt of the gamers
Gamers will argue that the industry is in a revolt as publishers choke customers with microtransactions, release incomplete games that require more payments for upgrades, and generally pickpockets. In the past, a gamer could buy an entire video game in one go. Today, buying the game is just the first step in the journey through endless microtransactions, loot boxes, and pay-to-level-up features to get the full experience. This puts off many gamers. While the online multiplayer aspect has improved engagement, it costs gamers more money. There are widespread complaints about publishers being lazy and complacent with their franchises literally releasing the same game year after year under alleged update improvements. This criticism has been leveled at all major publishers, including EA with its sports franchises, Take-Two Interactive (NASDAQ: TTWO) with its decade-old Grand Theft Auto franchise, and Activision (NASDAQ: MSFT) with its Call of Duty franchise. Next-gen console games for PlayStation 5 (NYSE: SNE), Nintendo (OTCMKTS: NTDOY) Switch, and Xbox Series X (NASDAQ: MSFT) also price higher near the $70 price point, with special variant editions selling for over $ 100 will be sold, including additional characters and content. The lack of innovation with titles re-released the following year with very few gameplay improvements puts off gamers as they feel they have no value for the money they spend.
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This is what the charts say
Using the gun charts on the weekly and daily time frames, we can interpret the price action on EA stock. The weekly gun chart bounced off the $109.30 . after a low swing Fibonacci (fib) level. The bounce peaked at $142.79 before falling back down. The weekly chart does not seem to be following a trend. The 5-period moving average (MA) of the weekly gun chart attempts to break out at $129.69 through the 15-period MA at $129.81 with a 50-period MA at $130.51. The weekly MA of 200 periods for $119.58. The weekly Bollinger Bands (BBs) sit at $113.06 lower envelope and $144.41 upper envelope. the weekly market structure layer (MSL) triggers above $133.14. The daily rifle is a cluster with the 5-period MA trying to rise at $126.37, along with the 15-period MA at $127.55. The 50-period daily MA equals $128.61 and the 200-period MA equals $128.61. The daily upper BBs sit at $136.49 and lower BBs at $121.21. The daily stochastic bounces through the 20 band. Attractive pullback levels are $125.87 fib, $122.54, $119.23 fib, $116.65 fib, $113.32 fib and the $110.53 fib level.
FIFA out
Electronic Arts announced in May that it is leaving the FIFA license after FIFA 23 is released on September 30, 2022. The license has been in effect for 30 years but is set to expire due to the company’s failure to negotiate a new license agreement with FIFA. The EA Sports FIFA series is the best-selling sports video game franchise with over 325 million units sold over the past 29 years. Instead, they will replace it with the new brand EA SPORTS FC that aims to partner with leagues such as LaLiga and renewed licenses with Major League Soccer, Saudi Pro League and Liga Professional de Futbol de Argentina. It is worth noting that this will result in the loss of FIFA and World Cup rights, but the company still maintains licensing agreements with leagues, individual football teams and players, just not under the FIFA or World Cup banner. Rumor has it that this saves Electronic Arts $150 million annually.
Firing on all cylinders
On August 2, 2022, Electronic Arts released its fiscal first quarter 2023 results for the quarter ended June 2022. The company reported earnings per share (EPS) of $1.11, better than analyst estimates for $ 0.95, with $0.16. Revenues declined (-2.8%) year-over-year (year-on-year) to $1.3 billion, better than consensus analyst estimates of $1.26 billion. Net bookings for the subsequent 12 months were up 22% year-over-year to $7.48 billion. Live services and other net bookings were up 20% YoY, representing 73% of total net bookings. EA’s player network grew to nearly 600 million active accounts. FIFA Ultimate Team engagement increased 40% YoY on weekly and daily average players. The FIFA Mobile game app delivered the quarter with the highest net bookings in history, with record high DAUs growing 10% yoy. FIFA and the launch of F1 outperformed net bookings.
It’s definitely in the game
Electronic Arts CEO Andrew Wilson commented, “EA delivered strong first quarter results with our growing player network deeply involved in new games and live services. Our growing EA SPORTS portfolio and proprietary IP franchises continue to provide resilience and longevity Our teams remain focused on what they do best: creating great experiences that inspire new generations to play, watch, create, compete and connect.” CEO Wilson has stated that sport is the evergreen form of engagement, and the cross-media collaboration in La Liga demonstrates this, with FIFA 22 having the biggest net bookings ever for years as the engine of reliable growth.
Increased Forward Guidance
Electronic Arts raised revenue expectations for the second quarter of 2022, with GAAP EPS of $1.54, up from $1.34, but eschewed consensus analyst estimates of $2.64. The company expects net booking revenue of $7.4 billion in 2022, up $7.3 billion, but eschews consensus analyst estimates of $7.44 billion.
EA SPORTS FC and LaLiga In
On its earnings conference call, the company will launch its most “expensive FIFA” ever this year as demand is extraordinary, driven by the World Cup. After that, they will push the EA SPORT FC brand with 300 partners to the community of hundreds of millions of players. CEO Andrew concluded: “And so, while the name of the game will change the nature of the experience and the connection players have with the game, with the leagues and teams they love and with the players they play with and what they’re playing against in the community, that’s many hundreds of men strong. Nothing changes that. We’re going to invest heavily in that and we’re very excited about what that future will bring. And again, we’ve announced our new LaLiga partnership that the nature of the things we can do is going to expand.” EA has signed a new five-year deal, making EA the official sponsor of LaLiga.
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