Why Recurring Revenue, Video Game Growth Make This Electronic Arts Analyst Bullish

Electronic Arts Inc. EA has continued to pivot toward annuity revenue streams, and the video game industry’s growth is accelerating rapidly, with higher lifetime value during the pandemic, according to Needham.

The Electronic Arts Analyst: Laura Martin maintained a Buy rating on Electronic Arts while raising the price target from $150 to $165.

The Electronic Arts Thesis: The shelter-in-place orders and absence of live sports have driven hours spent playing video games, resulting in record high playing times for the company’s "Sims 4," "Apex Legends," FIFA and Madden games, Martin said in a Tuesday note. (See her track record here.)

This trend is not limited to the near-term, and “post-pandemic engagement levels will remain elevated compared to January 2020 [pre-coronavirus] levels,” the analyst said. 

The time spent playing has a high correlation to in-game spending, which should boost the company’s results in fiscal 2021, “so long as shelter at home orders persist,” she said. 

The annual release of FIFA and Madden sports games represents an annuity stream business that has a well-established installed base of annual and predictable users, Martin said. 

This lowers the risk for Electronic Arts compared to its hit-driven video game competitors, while its hit titles and the ongoing shift toward digital downloads and uncapped in-game digital purchases provide upside, the analyst said. 

“Finally, we appreciate EA’s licensed IP strategy, which outsources its marketing costs to the sports leagues and film companies that own the underlying IP.”

EA Price Action: Shares of Electronic Arts were down 2.68% at $136.92 at last check Tuesday.

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