Electronic Arts stock forecast: Is EA a good stock to buy in 2023?
FIFA and Apex Legends game developer Electronic Arts (EA) saw a difficult year in 2022 as stay-at-home restrictions that saw bored consumers turn to video games rescinded.
The video gaming industry – which many had considered a recession-proof sector – is starting to show signs of weakness in decreasing discretionary spending from US consumers.
Several game developers including EA and rival Take-Two Interactive Software (TTWO) lowered their annual sales forecast in anticipation of a demand drop.
How will the Electronic Arts stock price fare in 2023? In this article, we take a look at the company’s recent results, historical stock price performance and the Electronic Arts stock forecast for 2023 and beyond.
About Electronic Arts: Revenue composition
Electronic Arts is a digital interactive entertainment company that develops, markets, publishes and delivers games, content and services on game consoles, PCs, mobile phones and tablets.
The company’s gaming portfolio includes brands that are wholly-owned such as Apex Legends, Battlefield and The Sims, or licensed from others such as Madden, Star Wars and FIFA.
In the September quarter of 2022, revenue from consoles accounted for about 65% of the company’s quarterly net revenue. PC, mobile and others made up the rest of its quarterly net revenue by platform.
By region, international markets accounted for nearly 57% of EA’s net revenue. North America accounted for the remaining 43% of its quarterly revenue.
The company also classifies its revenue into two categories: Full game and live services. Full-game revenues include digital sales of game downloads across all platforms, software licensing revenue and physically sold packaged goods.
Live services include revenue from sales of extra content for games, subscription offerings, advertising and non-software licensing. In the September quarter of 2022, live services contributed over 68% of EA’s quarterly net revenue. Full games accounted for about 31% of quarterly net revenue.
EA stock price analysis: Major price drivers and technical view
Two major drivers for the video-gaming industry in the post-pandemic era have been the gaming companies benefiting from stay-at-home restrictions, and a sector-wide consolidation via mergers and acquisitions.
Microsoft’s (MSFT) mammoth $69.7bn acquisition of Activision Blizzard (ATVI) made Microsoft the world’s number-one gaming company by market capitalisation, ahead of Tencent and Sony, according to CompaniesMarketCap.
In February 2022, Tokyo-headquartered Sony Group (SONY) followed suit with a $3.6bn deal to buy Bungie, the creator of Halo video games.
With Microsoft’s Xbox and Sony’s Playstation dominating the gaming-console business, industry experts expect Electronic Arts to be the “hot commodity” on the market due to “the appeal of EA’s strong video-game library”, according to Bloomberg Intelligence analyst Amine Bensaid.
In late-August 2022, there were rumours suggesting that tech giant Amazon (AMZN), which owns popular game streaming platform Twitch, was planning to make an acquisition bid for Electonics Arts. EA stock price jumped 3.6% on 26 August on the news. However, a media report from CNBC quickly quashed the rumour.
While Activision Blizzard has outperformed its industry rivals by gaining over 13% in 2022 on the back of its acquisition by Microsoft, Electronics Arts has not seen any concrete acquisition-related tailwind to help its stock price appreciate in 2022.
As of December 2022, there has been no further development on the Amazon acquisition rumour.
Increased competition, easing stay-at-home restrictions and the flop of its flagship game Battlefield 2042 dragged EA stock value by nearly 10% in 2022. Along the way, EA stock hit a one-and-half-year low of about $109 in early May 2022.
Looking back at Electronic Arts’ historical stock price performance, the all-time high stands at $151.26, achieved in July 2018.
Electronic Arts (EA) fundamental analysis: Latest earnings
In its latest quarterly earnings release, Electronic Arts reported total net revenue of about $1.9bn for the September 2022 quarter, up from about $1.83bn a year ago. Quarterly net income was close to flat over the past year at $299m.
Investor focus was on earnings outlook. EA lowered its net bookings guidance – a key metric for near-term revenue – by $250m to a range of $7.65bn to $7.85bn for the full year ended 31 March 2023.
The company cited a $200m foreign exchange-related impact as the main reason for the lower bookings guidance. As EA earns the majority of its revenue outside the US, the recent rise of the US dollar against other world currencies is expected to have an impact on revenue accounting.
EA said on 1 November that, “as a rule of thumb”, if the US dollar strengthens 10% against the Euro and the British Pound, the company’s total net bookings will decrease by 2% with currency hedging. The cost of revenue and operating expenses will decrease by 2% in the same scenario, the company added.
The company added that 2023 full-year net revenue is expected to be about $7.55bn to $7.75bn and diluted earnings per share is expected to be about $3.11 to $3.34.
In other highlights for the quarter, EA said FIFA 23 became its most successful launch ever with over 10.3 million players joining the game within the first week. It also released the racing title Need for Speed Unbound during the September quarter.
FIFA 23 is expected to be the last of EA’s popular FIFA franchise. From 2023 onwards, EA will release football games under a new EA SPORTS FC brand.
While EA said that it retained licensing partnerships with more than 300 organisations, including the UEFA, Premier League, La Liga and Bundesliga, there is still uncertainty over how consumers will react to the end of EA’s 20-year licensing partnership with FIFA.
Looking forward, gamers await the highly-anticipated Star Wars Jedi: Survivor slated to release on PlayStation5, Xbox Series and PC on 17 March 2023.
Analyst sentiment: Video-game industry and EA
Research firm Mordor Intelligence said in a report: “The gaming market was valued at $173.70bn in 2021, and it is expected to reach a value of $314.40bn by 2027, registering a CAGR of 9.64% over 2022-2027. Due to nationwide lockdowns implemented because of the Covid-19 pandemic, some people turned to game platforms to pass the time. Thus, these platforms attracted hundreds of thousands of new visitors to online traffic. Recently, video gaming trends experienced a massive surge in players and revenue.”
With regard to M&A in the gaming sector, Piers Harding-Rolls, an analyst at Ampere Analysis, said in an interview with CNBC following multi-billion acquisitions from Sony and Microsoft in recent months: “I think we’ve got a perfect storm. I’ve been covering this sector for 20 years and I’ve never seen anything like it.”
Brian Murphy and Einav Mor-Samuels, of Appsflyer, said the main drivers of the M&A boom in the gaming sector are “the pandemic-fuelled gaming landscape, a red-hot investment environment and mega studios striving to increase their UA [user acquisition] in a new privacy-centric reality”.
However, the investment bank warned that the company has a relatively weaker track record of execution compared to its peers.
According to research company Morningstar’s Sustainalytics ESG Risk Rating Report, Electronic Arts is rated “low risk”. The report added: “The company is noted for showing particular strength in the quality and integrity of its board/management and its audit and financial performance systems.”
However, Morningstar said EA is “exposed to cybersecurity risks including hackers gaining access to proprietary company information, such as source code for its games, and selling or leaking it on the web”.
Outlook: Electronic Arts stock forecast for 2023 and beyond
In its EA stock forecast, investment firm Jefferies rated Electronic Arts a ‘buy’ and set a price target of $165.
“We believe EA has a strong medium- to long-term content pipeline, options on numerous fronts, and best-in-class ESG focus keep us bullish,” said Jefferies on 2 November.
“Subscription looks like a 5-year growth engine and EA is well positioned against the cloud gaming opportunity,” added Jefferies.
According to an Electronic Arts share price forecast compiled by MarketBeat, the consensus recommendation for EA stock, as of 30 December 2022, was ‘buy’ from 10 of 17 analysts. Seven analysts rated the stock ‘hold’. MarketBeat data showed the consensus Electronic Arts stock forecast for 2023 stood at about $148.10.
Meanwhile, data firm Trading Economics said its global macro models projections and analyst-based Electronic Arts stock predictions saw the stock trading at $106.42 in one year’s time from 30 December 2022.
Finally, Wallet Investor’s long-term Electronic Arts stock forecast for 2025 saw the stock opening the year at $136.10.
Note that analysts’ Electronic Arts stock forecasts can be wrong – they shouldn’t be used as a substitute for your own research.
Always conduct your own due diligence and remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and goals. Never trade money that you cannot afford to lose.
FAQ:
Is Electronic Arts a good stock to buy?
According to an Electronic Arts share price forecast compiled by MarketBeat, the consensus recommendation for EA stock, as of 30 December 2022, was ‘buy’ from 10 of 17 analysts. Seven analysts rated the stock ‘hold’. MarketBeat data showed the consensus Electronic Arts stock forecast for 2023 stood at about $148.10.
Note that analysts’ Electronic Arts stock forecast can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence and remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and goals. Never trade money that you cannot afford to lose.
Will Electronic Arts stock go up?
Data firm Trading Economics said its global macro models projections and analyst-based Electronic Arts stock predictions saw the stock trading at $106.42 in one year’s time from 30 December 2022.
Note that analysts’ Electronic Arts stock forecasts can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence and remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and goals. Never trade money that you cannot afford to lose.
Should I invest in Electronic Arts stock?
Always conduct your own due diligence and remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and goals. Never trade money that you cannot afford to lose. Note that analysts’ forecasts can be wrong. Forecasts shouldn’t be used as a substitute for your own research.
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