If you live with children, you don’t need to be told that the video game market is alive and well in the age of the novel coronavirus. Even as many investments tanked amid the pandemic, Electronic Arts (NASDAQ:EA) stock has pressed forward to fresh short-term highs.
Critics might even assert that EA stock has done too well. This viewpoint relies on the idea that all stocks must pull back after running up. Will the law of gravity take its toll in this instance?
Don’t count on it. Profitability is of paramount importance, and Electronic Arts has certainly been profitable. In fact, there are reasons to believe that EA stock, even at an elevated price level, is still a solid buy-and-hold stock for the long term.
Stay Inside and Buy EA Stock
It’s not every day that an entire industry gets a powerful boost from a World Health Organization (WHO) announcement. But that’s basically what happened to the electronic gaming industry.
In late March, the WHO spearheaded a campaign known as #PlayApartTogether. The idea was to get people to stay home and play games at a distance, or remotely. In other words, the WHO was implicitly telling people to socialize through video games and other remote avenues.
WHO Ambassador for Global Strategy Ray Chambers even went so far as to cite video games specifically. He said, “Games industry companies have a global audience … more physical distancing [and] other measures will help to flatten the curve [and] save lives.”
That’s a profound thought: Could Electronic Arts actually save lives? At the very least, the company is part of a stay-at-home movement that doesn’t seem to be slowing down at all. As the team at Electronic Arts explained:
“There are more than 9,000 of us at Electronic Arts, and we’re part of a global gaming community of nearly 3 billion people. … [O]ur message is simple: Stay Home. Play Together. At a time where we need to stay physically apart, games can be a source of joy and connection.”
There’s no telling how long the lockdown orders will stay in effect. Even so, people around the world are undoubtedly being introduced to the gaming community during the pandemic. Regardless of the price, EA stock has the potential to grow just like the consumer base for video games.
Strength in Numbers
Electronic Arts’ next earnings release isn’t until May 5. However, we can look back at the company’s most recent earning report and conclude that Electronic Arts has maintained a robust financial position.
For the third fiscal quarter of 2020, Electronic Arts posted a stunning $1.6 billion in net revenues. That’s certainly an improvement over the $1.3 billion generated during the same quarter of the previous year.
And it gets even better when you break those numbers down. Of the aforementioned $1.6 billion in quarterly net revenues, $1.1 billion came from digital net revenues.
This is a company that doesn’t have to spend money manufacturing and shipping a physical product. Social distancing means that people are downloading and streaming games more than ever. The days of having to buy gaming units are long gone.
Electronic Arts also saw year-over-year improvement in quarterly operating cash flow — $1.1 billion vs. $954 million. But it wasn’t just a great quarter, as the entire year was predominantly cash-positive. Electronic Arts COO and CFO Blake Jorgensen explained it thus:
“Over the last twelve months, we have delivered record live services revenue, live services net bookings and operating cash flow. … We expect live services to continue to drive growth in fiscal 2021 and for growth to accelerate in fiscal 2022, led by a new Battlefield.”
If Battlefield isn’t your thing, maybe Need for Speed: Heat or Plants vs. Zombies: Battle for Neighborville would be more up your alley. In any case, you don’t have to play any of these games or even understand them. As long as legions of gamers are into them, Electronic Arts should remain in a strongly cash-positive position.
The Final Word on EA Stock
With the WHO showing support for the gaming market, EA stock remains primed to maintain and add to its gains. And as long as there are restless kids and addicted adults stuck at home, Electronic Arts will be at the top of its game.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.