EA Quarter Boosted By Strong Live Services Growth

Electronic Arts Inc. EA remains in the game after a third-quarter print showing strong revenue growth paced by in-game purchases and some good numbers from its Madden football franchise and a Star Wars game, analysts said Friday.

A trio of analysts continued to recommend the stock after the print even as investors seemed skeptical.

The Analysts

Needham's Laura Martin kept a Buy rating and $120 price target on the stock.

UBS analyst Eric Sheridan reiterated a Buy rating and raised the price target from $122 to $126.

Stifel's Drew Crum has a Buy rating and $126 price target on EA.

The Theses

The big thing for EA was what it calls "Live Services," the money it makes from in-game microtransactions that are increasingly seen as a big part of the business model for gaming. That revenue stream paced the company's sales beat as the company reported revenue up 27% year over year. The Live Services purchases made up nearly 70% of the total.

"Our Buy rating on the shares of Electronic Arts is based on further gains for Live Services which we view as an important determinant of the multiple, and a perceived beneficiary of a favorable industry backdrop," Crum wrote in a note.

That said, game performance was important, too. EA got a boost from stronger-than-expected sales of "Star Wars Jedi: Fallen Order," which it now expects to hit 10 million copies during the fiscal year that ends March 31. And "Madden 20" was the most successful game in Madden franchise history, noted Martin.

She also pointed out that in addition to the strong live services revenue growth, full game downloads were up 16% year over year for the Redwood City, Calif.-based company.

Sheridan said the company has stable franchise and the broader industry looks good.

"If EA management can continue a pace of beat/raise against their commentary, we would expect the shares to continue to outperform from current levels," he wrote Friday.

Price Action

EA shares were off nearly 4% on Friday, closing at $107.61.

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