Shifting To Digital Has Been Good To Electronic Arts

Shares of Electronic Arts Inc. EA hit a new all-time high of $108.71 Wednesday morning in reaction to its fiscal fourth-quarter earnings beat and announcement of a new stock buyback program.

The video game maker's report was good enough for Credit Suisse's Stephen Ju to maintain an Outperform rating on EA's stock with a price target boosted from $109 to $114. The analyst was quick to point out that the report represents yet another earnings beat due to a favorable mix shift to digital.

Ju said EA benefited from not only consumers foregoing buying physical games in favor of downloading, but also from micro-transactions from live services. For instance, "FIFA Ultimate Team" transactions grew by 30 percent on a year-over-year basis.

In fact, the shift to digital and consumer adoption of micro-transactions are two of the key components of the analyst's long-term bullish stance. Another supporting factor is the expansion of EA's addressable market to better address the vast global market of online users.

Ju noted that EA's decision to shift BioWare's new IP into fiscal 2017 also bodes well for the long-term bullish case as it allows for additional development time.

Finally, the analyst explained his $114 price target is based on an 11 percent WACC (weighted average cost of capital) and a 3 percent terminal growth assumption. As a minor caution to investors, Ju stated that a lack of commercial traction for any of the upcoming games poses a risk to his estimates.

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