Electronic Arts set for more soccer success, despite the end of its FIFA deal: Analysts

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Shares of Electronic Arts Inc. rose 0.9% in premarket trading on Wednesday, boosted by the company’s strong first-quarter revenue growth and the ongoing popularity of its FIFA franchise.

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Electronic Arts Inc.’s EA,
-1.51%
stock closed down 1.5% at $128.89 on Tuesday.

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Confounding concerns that the pandemic boom in video game sales could disappear this year, Electronic Arts Inc. reported revenue of $1.767 billion, compared with revenue of $1.551 billion in the prior year’s quarter.

The videogame publisher reported net income of $311 million, or earnings of $1.11 a share, compared to net income of $204 million, or earnings of 71 cents a share in the same period last year.

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Analysts tracked by FactSet had forecast revenue of $1.259 billion and earnings of 89 cents a share, or 33 cents a share on an adjusted basis.

See Now: Electronic Arts gets Q1 top-line beat, despite worries about sales slowdown

The company’s FIFA franchise and the successful launch of the latest “F1” game also drove net bookings outperformance.

“EA delivered better than expected F1Q23 financial results, initiated conservative F2Q23 financial guidance, and repeated FY23 growth targets,” wrote Benchmark analyst Mike Hickey, in a note released Tuesday. “In the quarter, growth upside was attributable to EA’s FIFA franchise and the launch of F1, while the launch of ‘Apex Legends Mobile’ was not identified as a growth consideration.”

Benchmark has a buy rating and $188 price target for Electronic Arts.

Speaking during a conference call on Tuesday, Electronic Arts CEO Andrew Wilson highlighted the continued success of the FIFA franchise. “Our belief is that this is going to be a very strong year for our FIFA business,” he said, pointing to the FIFA World Cup, which kicks off in Qatar in November.

The EA chief also described the next and final game in the FIFA franchise, which launches on September 30, as “the most expansive FIFA game ever.” The company is seeing strong pre-launch momentum for the game, according to Electronic Arts.

See Now: The pandemic boom in videogames is expected to disappear in 2022

The company’s relationship with soccer’s governing body, the Federation Internationale de Football Association, has been in the spotlight in recent months. Earlier this year, Electronic Arts and FIFA ended their longstanding partnership after failing to strike a new licensing deal for the hugely successful FIFA soccer game.

However, analysts are confident that Electronic Arts’ successful run in soccer gaming will continue.

“As EA ends its longstanding partnership with FIFA, our experts expect the impact on EA to be minimal,” wrote Nicholas Cauley, an analyst at Third Bridge, who has interviewed a number of executives in the gaming space. “EA can seamlessly continue their soccer offering thanks to its extensive licensing agreements with major leagues, stadiums, teams, and players.”

After launching the final game in the FIFA partnership later this year, Electronic Arts will launch “EA Sports FC” in 2023.

“It is very unlikely for a new competitor to partner with FIFA and win market share from EA Sports FC in the short term due to the high barriers to entry and the licensing agreements EA has with other franchises,” wrote Cauley. “Konami 9766,
-1.16%
is becoming less relevant and it would take years of R&D for other studios to develop a competitive soccer game from scratch.”

See Now: EA splits chief technology officer role as Ken Moss heads for the doors

Wedbush analyst Michael Pachter also noted that EA has a number of brands that it can call upon to drive growth. “Among these, several racing titles (Burnout and Dirt), titles from its BioWare studio (Mass Effect and Dragon Age), and likely several entries in the Star Wars game series,” he wrote, in a note released on Wednesday. “The relinquishment of the FIFA license should free up capital (we estimate $150 – 200 million in royalty savings) to invest in more aggressive marketing, and we are confident that once the license is terminated, EA’s profitability will remain intact.”

Wedbush raised its EA price target to $170 from $164 and maintained its outperform rating.

Electronic Arts is already forging deals to tighten its relationship with the world of sports. Hours before its earnings report, the company announced a multi-year sponsorship with Spain’s LaLiga professional soccer league, which is home to powerhouse teams such as Barcelona and Real Madrid. The partnership between the company’s EA Sports FC division and LaLiga will include naming rights for all LaLiga competitions.

During Tuesday’s conference call, Wilson said that the LaLiga partnership will “expand on the nature of things we can do.”

Shares of Electronic Arts have declined 2.2% this year, compared with the S&P 500 index’s SPX,
-0.67%
decline of 14.2% over the same period.

Of 33 analysts surveyed by FactSet, 25 have overweight or buy ratings and 8 have hold ratings.

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Credit: www.marketwatch.com /

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