Morgan Stanley: How Gaming Stocks Like EA Can Cash In On Streaming, Subscription Trends

Everything from clothes to food to movies are sold in subscriptions. Video game publishers like Electronic Arts Inc. EA are capitalizing on the trend, and a Morgan Stanley analyst considers the shift to be broadly transformational.

The Rating

Analyst Brian Nowak maintained an Equal-weight rating on Electronic Arts with a $126 price target.

The Thesis

EA’s subscription model and in-progress cloud gaming service are positive developments, but they’re also transformative for the pack, Nowak said in a Sunday note. 

“EA’s streaming and subscription focus has the potential to lead to a larger and even more profitable video game industry,” the analyst said. 

The subscription and cloud gaming model could expand the total addressable market of gamers by eliminating the prohibitive cost of owning a $300 to $500 console, according to Morgan Stanley. The accessibility of games across devices could also drive higher in-game engagement and opportunity for monetization, Nowak said. 

At the same time, streaming obviates the need for consoles and allows publishers to work around the 30-percent fees paid to the likes of Sony Corp (ADR) SNE and Microsoft Corporation MSFT.

The software-as-a-service subscription model ensures recurring revenue, which Morgan Stanley expects to drive multiple expansion for video game publishers.

Price Action

At the time of publication, EA shares were trading up 1.58 percent after the open Monday at $140.04. ETF MANAGERS TR/ETFMG VIDEO GAME TE GAMR shares were trading around $54.02.

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