Electronic Arts, Inc. (EA) was founded on May 27, 1982. The company is a video game publisher headquartered in Redwood City, California. As of March 31, 2020, EA had 9,800 full-time employees.
Electronic Arts, Inc. (EA) has seen a strong start to 2020 with its stock price increasing approximately 20% from January 2 to June 22. EA’s performance compares favorably to competitors such as Ubisoft (UBSFY, up 12%) and Take-Two Interactive (TTWO, up 15%). EA trailed Activision Blizzard (ATVI, up 30%), however.
For the trailing twelve-month period ended March 31, 2020, EA had a P/E ratio of 12.59 and EPS of $10.30. By comparison, TTWO had a P/E ratio of 39.87 and EPS of $3.54 and UBSFY had a P/E of 27.55 and EPS of $0.56.
EA’s Sports Franchises are a huge part of their success
EA is perhaps best known for its sports game portfolio which includes FIFA, Madden NFL, NHL, and UFC. According to EA’s annual report, net revenue from FIFA titles accounted for approximately 12% of total net revenue in fiscal 2020. Per gamstat.com, there were 31,500,000 total players playing FIFA 20 on PS4 and an additional 4,300,000 on Xbox One (worldwide). There are fewer Madden 20 players on PS4 (approximately 7,100,000) and 92% of those players are in North America.
In addition, EA creates PC and mobile versions of its games which expands the player pool significantly. EA has seen a shift in consumer purchasing behavior, with digital sales of games increasing from $680 million in fiscal 2019 to $809 million in fiscal 2020. Management expects this trend to continue as gamers move away from purchasing physical discs for games.
EA’s current agreement with FIFA runs through December 31, 2022. The agreement grants EA the exclusive right to release FIFA branded games and create World Cup games. In an interesting twist, EA’s agreement applies to only FIFA brands and therefore does not include licenses to teams such as Italy’s Juventus. In fact, Juventus does not appear in FIFA 20 as the Italian club signed an agreement with Konami that gives Konami exclusive right to use the team’s jersey and brand. Juventus is home to one of the most recognizable names in soccer, Cristiano Ronaldo.
EA’s exclusive agreement with the NFL ends in 2020, opening the door for competitors such as TTWO to produce NFL branded games. From 2005 to 2020, EA was the only publisher allowed to use NFL names and likenesses in its games. Beginning in 2021, the NFL is allowing both EA and TTWO to produce games using NFL names and likenesses. This non-exclusive agreement will likely have a significant impact on Madden sales. Interestingly, EA does not have an exclusive agreement with the NHL but also does not have any competition as no other company has made an NHL game.
It doesn’t seem like they are slowing down
EA is well-positioned for the next few years as more people are exposed to gaming globally. EA’s exclusive agreement with FIFA does not expire until the end of 2022 and it is likely that there will be negotiations to extend the agreement soon. The loss of exclusivity with the NFL could hurt revenues going forward.
The company, however, has expanded its mobile gaming offerings. EA’s annual report reveals a focus on free-to-play mobile games that include in-game purchases. Per management, “sales of extra content are the primary driver of our mobile business”.
EA expands into esports
EA has also gotten into the esports scene. The Global Series 2020 is a 9-month long international competition that culminates with the eWorld Cup in July. Millions of players from 60 countries around the world compete to accrue points in order to qualify for the eWorld Cup. The Global Series 2020 has approximately $3 million in total prize money across all events.
EA is also the creator of Apex Legends, a first-person shooter game. 2020 marked the start of the Apex Legends Global series which originally planned to have 12 live events, 10 online events, and a prize pool totaling $3 million.
Article written by Rohan Bose | photo credit: Electronic Arts